The Commodities Markets and Which Direction They Are Headed

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Commodities are raw materials which are extracted from the Earth. There are numerous commodities which are traded on the open markets and through Forex brokers as well as retail brokerage firms. There are numerous examples of commodities products which are; crude oil, coffee, metals, agriculture, wheat, soybeans, corn, copper and cotton. Typically, commodities meet the following criteria; they are tradable, deliverable and are liquid. The most widely traded commodities are metals, crude oil and coffee. Commodities prices can change at the drop of a dime. According to several commodities analysts, it is believed that specific commodities products are due for a correction.

In addition to Crude Oil and Coffee one of the most traded commodities in the world are metals. This group of commodities consists of items such as; gold, silver, platinum and copper. Metals are utilized in all industries from construction, fabrication of machines as well as consumer goods. In addition, many metals are found as components of jewellery. Metal commodities are traded on exchanges such as the London Metal Exchange, COMEX & NYMEX.

Commodities prices tend to be cyclical. Over the last 15 years, many investors have taken advantage and the benefits of investing in commodities as a strategy to diversify their portfolios. Presently, there are over 135 commodity ETFs providing investors and traders exposure to numerous commodities such as metals, grains, oil, coffee and sugar. One major factor affecting the volatility of commodities is the price of these products over the course of economic cycles.

One of the most important questions which should be asked by investors and traders is have commodities prices peaked. Beginning in 2000 which some deem as the great commodity super cycle investors were more than happy to take risks on commodities prices. Leading up to the financial crisis of 2008, commodities prices had great returns for investors and speculators. There is evidence showing that these great run ups in commodities prices (according to the World Bank) will not accelerate as they have in the past but should remain static until roughly 2020.

One of the most abundant metals traded is gold. Just like any commodity, gold is subject to the laws of supply and demand. Gold prices in general are far off from their highs back in 2011 when an ounce of gold was trading at $1900. Typically, the United States dollar and gold prices go hand in hand. Back in 2011, the United States dollar was not as strong as it is today. In 2011, when the United States dollar was weaker, the investment in gold was viewed as a hedge against inflation.

At the time of the financial crisis, investors and traders believed that gold would continue to rise from the devaluation of the United States dollar by the FED. Investors and traders who thought that gold prices would remain stable since their highs are now feeling the pain from investing in the metal.

Again, it is important to note that gold prices are subject to the laws of supply and demand. Today, the demand for gold is low pushing the price for the metal down. In 2011, investors and speculators believed that gold was a sure thing and demand pushed prices higher.

Even though gold prices are not close to what they were throughout the last several years, 2016 has amazed some investors and speculators that the metal has outperformed numerous asset classes. Gold ETF prices have exploded during the last several months of 2016. The rate of growth has far exceeded that of 2015.

There is a great deal of speculation about gold prices and where they will potentially go over the next several months. There are some who believe that the price of gold will actually drop below $350 an ounce. These price levels in gold have not been seen since 2003. Even though these price levels appear to be completely off the chart, there is reason to believe that when reviewing historical gold prices that the present price near $1,250 is high. If the dollar continues to remain strong and inflation remains in check the drop of gold prices along with other precious metals could be significant. If a metal like gold drops in prices not seen since 2003, this would equate to roughly an eighty percent crash from gold prices at its peak in 2011. This type of sell off would be catastrophic to many investors and traders who are long gold.

Inflation rates within the United States have been in check and relatively low. In the past, gold and other precious metals have been an excellent hedge against inflation rates. When the cost of living increases, due to the jump in inflation (measured by the Consumer Price Index), investors as well as traders flock to gold. Presently, the steady rate of inflation, along with the strength of the dollar, has kept gold prices in check.

In closing, commodities markets can be very volatile and active traders that are looking to make money in this market should keep a close eye on commodities prices as well as news and events around the world. Inflation plays a major role in the buying and selling of precious metals and investors as well as traders should also carefully monitor economies around the world to determine the rate of inflation within these countries. Today, the most popular traded commodities are; crude oil, coffee, metals, agriculture, wheat, soybeans, corn, copper and cotton. Institutions as well as individual traders and investors who trade metals do so on exchanges such as; Comex, Globex, USAGold, Australian Securities

Exchange, Chinese Gold and Silver Exchange and Shanghai Benchmark. Again, precious metals such as gold, silver, platinum and copper are some of the most actively traded commodities throughout the world. When working with a Forex broker the Forex trader will have the ability to see various commodities prices such as copper prices, gold prices and silver prices in real time and have the option of trading these commodities.



Source by David Becker

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