When it comes to discussing investment options, commodities often pop up as something that is seen as a gamble. But are commodities actually a viable investment?
There are a few basic kinds of commodities. There are metals like gold and silver. There are gas-type resources like oil and gasoline. There are animals like cattle and pigs. And then there’s also grown commodities like wheat and corn.
Commodities as an Investment
Not only are there many forms of commodities, there are also different ways of investing in them, take gold for example. If you were interested in investing in gold, you would have a few options to consider. The simplest route would to buy a gold bullion ETF, but you could also purchase gold bars and physically store them, or you could even buy gold jewelry and other gold-based products.
Generally as a whole, commodities are simply a resource used in the means of production, that is valued based on simple supply and demand. By very nature, the price of various commodities aren’t specifically predicable because of the way in which commodities are traded. Just like stock prices can’t be determined on a short-term basis, commodities are very volatile even in long periods of time.
However, this brings us back to our original question, should one invest in commodities? First off, I wouldn’t consider commodities a real investment because resources, just by themselves, aren’t growing enterprises that produce cashflow or even profit. So if one is going to discuss “investing” in these, let’s call it what it is: speculating.
My option speculation is that speculation as a whole is generally a bad idea for long-term investing. However if one considers the prices of certain commodities there are predicable supply-demand patterns that arise. Gold for example, has done considerably well in times of economic panic.
Overall, commodities aren’t a wise “investment” choice for the majority of investors. However as part of a broad portfolio, it might not be bad to put a 5% or 10% stake in gold as a hedge against economic disaster. Ultimately the choice depends on the individual.