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The stock market can be unpredictable, so savvy investors often turn to commodities to de-risk their portfolios and take advantage of rising prices amid weak share markets.
Even looking back at just the past few years, socioeconomic pain and global political unrest have caused a rollercoaster on major stock markets, but many commodities have risen significantly.
City Index research outlines how the value of European natural gas has increased by 1145 per cent since 2020, while Australian coal’s value per metric tonne has increased by 467 per cent over two years.
Crude oil averages are also up a staggering 135 per cent since 2020, and the Natural Gas Index is up 519 per cent.
So how can investors take advantage of soaring prices and know when to take their profits?
The key, according to City Index, is simply examining trading patterns and trying one’s hand at technical analysis.
Global Head of Research at City Index, Matthew Weller, said increasing one’s knowledge of patterns and trends to improve investor tactics was not as daunting a task as it may seem.
“Before you start trading commodities, make sure you educate yourself, many webinars, courses, and articles are available online for you to get a better understanding of the commodities market,” Mr Weller said.
Some trends are straightforward and relatively well-known — such as the fact that gold tends to rise when economies fall, earning the metal a ‘safe-haven’ status among investors. Other trends may take some time to learn, but this can be a lucrative endeavour.
City Index said factors affecting commodity prices were important to monitor and understand, such as political conflicts and the changing of policies in large economies.
Commodities, however, tend to be more volatile than other types of assets. Moreover, depending on an investor’s geographical location, major moves in commodity prices can happen overnight when investors can’t monitor their portfolio.
As such, City Index said stop-loss orders could prove highly valuable to investors who may be more risk-averse.
City Index encouraged investors to open demo trading accounts to buy and sell commodities using paper trading and test their trading skills in a real market environment.
Lastly, before opening a live trading account, investors are encouraged to employ an experience regulated stockbroker.
Commodity trading has almost doubled since 2018, reflecting the many low-cost investments that could reap rewards if done the right way.
It’s no wonder City Index claims investing in commodities now could be a “great opportunity” to diversify portfolios and at the same time diminish the risk of losing funds.
