Commodities are basic goods that you can buy and then transform them into other goods or services. They are considered beneficial because they resist inflation and can be a great asset against the fluctuations of currencies. Investing in commodities can diversify your overall investment strategy and reduce risks. They also are affected by geopolitics, supply, and demand, but as every experienced investor will tell you, it’s best not to depend on one single thing when it comes to money. A lot of brokers specializing in various kinds of investments will advise you to keep also different assets (check out FX Choice review to see an example of a diversified investment offer combining, for example, forex trading with buying metals). So what are some of the best commodities to invest in this year?
1. Copper
Copper may be the perfect choice for you if you plan to be investing for six months or a longer period of time. It’s a highly versatile commodity as it’s being used in, for example, wiring, making motors, or construction. China is one of the main producers of copper but also accounts for half of all copper consumption in the world, so you can probably guess that the price of copper has been greatly affected by the outbreak of coronavirus. But that’s why it may be a good investment – it’s an almost unrepeatable opportunity to buy it cheaper and wait with selling for better times. And since there’s still a deficit on the market, while the demand stays on a high level (for example, it’s used as a conductor for wind power generators and photovoltaic cells, and the sustainable energy industry is growing rapidly), you can be sure that the price will be attractive. Other large producers include Chile and Peru. You may consider buying stocks in copper companies rather than buy copper by yourself as you will need a lot of it to make a profit.
2. Other base metals
Apart from copper, investors decide to put their money in other base metals like aluminum or zinc which are used in various industries, e.g. manufacturing or construction. They may not be as profitable as other commodities, but they are also more stable and inexpensive to buy. The best way to make money on base metals is to buy stocks in base metals companies.
3. Crude Oil
Crude oil is being refined into products like gasoline, plastics, medicines, ink, cosmetics, fertilizers, asphalt, and many others made from petroleum, so you can see that the demand for it is probably always very high. The higher the demand, the lower the supply, and the prices go up, so it will probably be cheaper in winter, and more expensive during driving seasons, etc. It’s also susceptible to geopolitical factors, for example, tensions in the Middle East influence the price of crude oil significantly, as most of the world’s oil is produced there. If you decide on this commodity, you can invest with futures (it’s quite complicated, though, and it requires some capital), but also buy some stocks in an oil company or shares in mutual funds (which is considered to be the least risky option).
4. Gold
Gold has been one of the most wanted commodities for a long time now. The gold market is very versatile and is constantly growing with gold being used in jewelry and technology, but also being bought and sold by central banks and investors from all over the world. It’s considered to be a relatively safe investment, as it’s not so susceptible to inflation, and it always goes high when the U.S. dollar goes down. The price also changes when central banks decide to sell or buy more gold. It’s a commodity that it’s actually worth to buy physically in coins or bars, but for that, you will need a safe place to store it. You can also go with futures contracts, but it’s riskier, just like stocks and ETFs which are affected not only by gold itself, but also by mining and exploration.
5. Palladium
It has gain popularity after the 2008 financial crisis; it’s rare, its uses can be extremely versatile, and it’s relatively safe when you consider that it’s not greatly affected by politics or inflation. Its value has been rising gradually for years, and there are more and more investors appearing who decide to put their money into this rare metal. Some market experts say that 2020 will be the year of palladium, but others prefer to stay cautious.
The bottom line
If you consider investing in some commodities, you need to do some research to know what is the level of production of your chosen commodity in the world, if there are any new supply sources or maybe there’s a possibility that something will be explored. It also won’t hurt to consult with an experienced broker, especially if you’re new to the market.
