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Investing in Commodities:
Recent headlines have highlighted the rise in energy and food prices. Here’s a closer look at investing in commodities, including various investment options in this sector.
What Are Commodities?
Commodities are natural or agricultural products that are essential for producing goods such as food, energy, and clothing. They are categorized into two main types:
- Soft Commodities: These are agricultural products or livestock, such as coffee, wheat, soybeans, cotton, and meat.
- Hard Commodities: These include energy resources like crude oil, natural gas, and coal, as well as metals like gold, silver, palladium, copper, lithium, and aluminium.
Performance of Commodities:
Darius McDermott, managing director of Chelsea Financial Services, notes that commodities performed well in 2021 and 2022, driven by supply chain disruptions and rising prices. The S&P GSCI, a broad index of 24 commodities, saw returns of 42% in both years. Although the index showed some decline in 2023, it remains valuable for portfolio diversification due to its low correlation with global equity markets.
Considerations:
Investing in individual commodities or related stocks involves risk, and prices can fluctuate. Always consider seeking professional advice before making investment decisions.
