Wednesday May 25, 2022

It is advisable to invest time in commodities

The rise in prices caused a sharp increase in interest in investing in commodities. For some investors, these specific investments may be a good protection against rising prices or inflation.

Soils, wheat, gold, ethanol, corn, oil are some of the raw materials that completely surround us and are everyday used directly or indirectly by the entire population. Collectively, we call them commodities. For the majority of the population, these are exclusively raw materials, for which, when they are purchased, they raise funds and which indirectly increase the expenses of individual households.

For many investors, however, it is still more interesting to invest in commodity markets and are still a cornerstone of individual investment portfolios. Many of them now talk about the fact that the 21st century can be a century of commodities.

Investment in commodities itself has long been on the fringes of demand. Not only in the Czech Republic, investments in commodity markets in the past period were considered by only large and speculative investors, and the current investor did not reach these volumes. The majority of investors thus moved firmly on the stock and bond markets.

Although investments in commodity markets are still considered to be somewhat usual than usual, the rise in prices has led to a significant increase in the first investment in commodities. The current investor considers the commodity as a Sunday part of a quality portfolio, a quality accessory for increasing returns and at the same time diversifying his investment portfolio. This, of course, will continue to increase the availability of commodity investments for new investors, both in global markets and in the Czech market.

Yes or no? Spe how much and how!
With the growing popularity of the commodities themselves, the question should not be: “Commodities yes, no?”, But how many commodities to buy (given the external risks of a particular investor), and especially in what way. Buying these commodities, so-called “directly on the market” is not suitable for the average investor. It is much better to invest in special commodity funds, or special valuables (including certificates), which on the one hand copy the development of the price of individual commodities with their price and at the same time they can be regularly bought and sold.

Thus, the investor can take advantage of the value of his commodities and at the same time does not have to physically supply the commodities of the counterparties in the event of a sale. At the same time, it is a good idea to diversify a specific investment and thus increase your interest in interest and risk-based returns. Another specially structured product is a specially structured product. Through it, the investor himself can realize the incomes resulting from the movement of several different commodities at once.

A great helper in the fight against inflation

The characteristics of commodity markets in general include that they tend to grow in a period of rising inflation. This protects the fair value of the investment. If the prices of goods and services in the economy rise, in other words, inflation, the prices of raw materials consumed in the production of goods and services increase at the same rate. Thus, investments in funds in which, in addition to traditional stocks, bonds and real estate, commodities are included, can be an ideal protection against inflation.

A practical example of such compensation is currently offered by rising heating costs in connection with another inexhaustible amount of commodities – oil. The client buys an investment certificate taken at the price of oil or at the price of energy. From the revenue that this investment will bring due to rising oil prices, I am increasingly receiving rising heating costs. If the prices of these energies fall, the yield of the given certificate will fall, but also the heating fee. Investing in commodities can also be a very good helper in the fight against inflation.

Investments in agricultural commodities scored last year
In the past year, investments in commodities were generally among the most successful. Especially because, for example, oil has reached the magical limit of $ 100 per barrel, and the price of a penny traded in Chicago has risen by 100% since the end of the year. For example, the price of soybeans rose sharply. Due to growing consumption and the popularity of biofuels, the price of corn has risen again. As a result, cereals and oilseeds have become an investment hit of the year, despite record levels of oil and gold. Even this year, agricultural commodities can become a very interesting investment. The state of supply is in the last 30-40 years, but on the other side of the demand riches in Asia and the production of biofuels is very strong and the main factor that can compensate for this discrepancy is rising prices.

The high dynamics of the Czech and Indian economies is, of course, reflected in the growth of consumption, including food consumption. The Economist states that the average consumption of HV meat has doubled in the last twenty years to 50 kg per capita. This, of course, raises the demand for cereals, because the production of 1 kilo of beef requires 8 kg of grain.

Biofuels were supposed to dream of dependence on oil and to use the surpluses of agricultural production in the USA and Europe. The price of crops used for the production of bio-alcohol, such as maize, has been rising sharply for the last 2 years due to high demand. Even with a sharp increase in sown area. In turn, they are affected by a combination of several effects – as an oilseed, it is used for the production of biofuels and is also a key crop in the food industry. Despite strong demand, the sown area in the USA fell to a 12-year low due to the different sown areas of maize.

Due to changes in high demand and wide use of these crops, their price is likely to increase and the value of the investment itself will increase. Commodities can thus, in 2008, most likely be among the very good investment sectors.

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