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This article was first published 16 years ago  » Business » Investing? Go for commodities

Investing? Go for commodities

By Mohit Khanna
March 17, 2008 12:11 IST
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In the last few years, not many people have been talking about commodities. But suddenly, everyone -- from common investor to foreign institutional investors -- are talking hot about commodities.

Is the commodity futures market hot these days because the global equity markets are in volatile conditions? Yes, that is one reason; but that is not alone.

Globally, from Jim Rogers to Warren Buffet, many investors now treat commodities as the best investment opportunity mainly because commodities are real assets. They are all made from raw materials and natural resources, and thus have a great value chain. Raw material prices can come down; but prices of a finished commodity rarely go down.

In the current global economic environment, commodities have a lot going for them. It is said that commodities are the best investments during high inflationary periods because increases in the price of raw materials reflect the rising costs of goods.

Also, if you look at history, whenever the global stock markets have passed through volatile periods, commodities have zoomed. For instance, during the flat equity market period in the United States between 1966 and 1982, the commodity markets were simply booming.

Historically, bull markets in commodities have existed every 20 or 30 years; and these

days it is the season of the bull run in commodities market, mainly brought about by the zooming prices in crude oil and metals led by gold.

As you invest in commodities futures, you are not just taking a piece of paper that says you own an intangible piece of company that can go bankrupt; like it happens in the equity market. When you enter into a commodity futures contract, you are in fact buying an actual piece of commodity-- whether it be rubber, coffee, gold, silverÂ…

Commodity prices can just shoot up during a bull market, as it is happening with Crude Oil and Gold these days. While Crude has gone past $100 per barrel, Gold is all set to touch a historic $1000 an ounce soon.

The reason why people have not talked about commodities all these years is because the commodity market has been largely in a massive slump for about 25 years.

The commodities market is now back in action.

The Dow Jones AIG Commodity Futures Index, a major benchmark for the commodities world, is up 11 percent since the beginning of the year. The Rogers Raw Materials Fund (RRMF), an index fund that tracks price moves of 35 raw materials on commodities exchanges, is also up on the charts.

So, investors these are days of the commodities bull market. Come on, invest if you have confidence in commodities.

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Mohit Khanna

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