THE COMMODITIES MARKET AND WHICH WAY THEY ARE HEADED
Commodities can be defined as raw materials that are extracted from the soil. Should we take this definition in an empirical extension, then there are quite numerous raw materials that will fall into the category of a commodity. In that wise, there are many examples of raw materials such as crude oil, coffee, metals, agriculture, wheat, soya beans, corn, copper, and cotton just to mention a few that will qualify as a commodity. Specifically for a raw material to be called a commodity, it must have the following qualities; tradable, deliverable and tangible or liquid. Should now work on the understanding of the above definition and qualities, then we will say the following are the commonly traded commodity on any popular Commodity Exchange. That is; metals, crude oil, and coffee. Interesting feature a commodity trading is that prices can change at the drop of a cent. Commodities analyst are of the opinion that some specific commodity products are due for a correction. Talking about most traded commodity on any Commodity Exchange platform, it is the crude oil. Following this is coffee. When these two commodities are taken off, then, there come the most traded; metals. Metal is further broken into the following items; gold, silver, platinum, and copper.
Metals are utility materials in all industries starting from construction, fabrication of equipment as well as consumer goods. Do not forget that metals are found to be part of the components of jewelry. Popular commodity exchanges for metal are namely; London Metal Exchange, COMEX, and NYMEX. Commodities prices are cyclical. Thinking back towards 15 years, investors have the advantages and benefits of investing in a commodity which is a strategy of diversification of the investment portfolio. Presently over 135 commodity ETFs providing a lot of investors and traders in a commodity with exposure to commodities such as metals, grains, oil, coffee, and sugar. There is a major barrier that affects the volatility of commodities and it is the price of these products over the course of economic cycles. There is a pertinent question which should be asked by every commodity trader and investors alike is have the price of commodities peaked yet? Early in the year 2000 was a period which some saw as the great commodity super cycle. During this year, and taking cognizance of the super cycle, traders and investors alike were more than happy and fully prepared to take a risk on commodity prices. These actions lead to the global financial crisis of the year 2008. During this period, commodities prices had great returns for investors and speculators.
The World Bank has evidence which that this great run-up in commodities prices will not accelerate just it has done in the past until the year 2020. The Bank project that run-ups will be static until this projected year. Now to consider the various types of metal traded on the commodity exchanges, almost the world over is gold, and it is subjected to the simple law of demand and supply. Gold prices generally are far off from the high prices way back to 2011 Support When You Need it an ounce of gold was sold for $1900.
Coincidentally at that time, gold price and the United States Dollar were going hand-in-hand. Remember that, in that year the value of American cannot be compared with what it is today. The thinking in 2011 was that when the American dollar was weaker, it was gold that was used as a hedge against inflation through investment in the commodity. The assumptions investors and traders gold are that during the time of financial crises it will continue to rise from the devaluation of the United States dollar by the FED.
Those that subscribed to that school of thought at that time, are now feeling the pain and regretting investing in the metal. Gold is today proving the maxim correct that “demand and supply” determine the price of any commodity or product. Presently as of today, the demand for gold is low, thus pushing the price of the metal downwards. Whereas as at the year 2011, speculators and investors strongly believed that gold was sure, which truly demand as at that time pushed the price upward.
Notwithstanding, gold prices are not near to what they were several years back, 2016 was an amazing year in the sense that some investors and speculators were surprised that the gold has outperformed numerous asset classes. The rate of growth of prices of gold in 2016 has surpassed that of 2015. Gold ETF prices have exploded in the several months in 2016. Meanwhile, there is a great deal of speculation about the likely direction at which the prices of this precious metal will go in the foreseeable future time. Some are even speculating that gold price may plummet down to an ever low rate of $350 an ounce. The reason for this school of thought may not be far from the fact that, such recent happenings have not being seen for some period of time in the past, particularly way back to the year 2003. It is important to postulate that if the value of the American remains strong and inflation is consistently put in check, then the drop in gold prices and other metals could be significant. Should the price of a metal commodity like drops like never experienced far back 2003, this would certainly equate to an 80% from gold prices at its peak in 2011. The resultant effect of such will be catastrophic to many investors and traders.