Commodities: how and why?

Synopsis

Investors looking to diversify their portfolio of stocks and bonds can add commodities to enhance their return without increasing risk. For over a decade, many large investors have turned to commodities, which feature some of the oldest and most liquid markets globally. While commodities can be expensive to store, they can be accessed through the futures market, allowing investors to buy at a fixed price for future delivery. Recently, commodities have been financialized, enabling investment through exchange-traded notes that track futures prices. Precious metals serve as a hedge against inflation, while industrial metals are closely tied to the global economy, particularly China. However, commodities come with disadvantages, such as the lack of income generation and exposure to risks like bank failures and unpredictable natural events. Many investors are concerned that the market may currently be in a downward cycle.