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Why Commodities Markets

Why should you invest in commodities?

A very simple asset class to understand yet so many investors are underexposed in this sector. Traditionally much less popular to invest into than the typical mainstream asset classes such as the equity and bond markets. However, times are changing as accessibility to commodity markets has been made easier and the large potential swings in the markets has caught investors’ attention.

 

The commodity bull market started in 2001 with prices moving in parabolic fashion. The emergence of China as a super power and the growth in the other BRIC nations (Brazil, Russia, India and China) supported the commodity index to excessively high levels. This ended in 2011 and the commodity index has since given up most of their gains. The recent uptick in demand and prices has given investors and analysts belief that the bottom may have finally been seen and commodities could be ready to embark on the next phase of their bull run.

 

Whilst growth is benign amongst the major Western countries, expansions amongst the BRIC nations is rapid and with population sizes increasing significantly one could expect demand for commodities to pick up. China are openly investing heavily in the commodities sector as the governments focus on improving growth in the country is top of their agenda.

 

Since the start of 2016, gold has already rallied more than 20% as extremely low interest rates globally and easing monetary policies are underpinning prices. Gold looks to be signalling a trend change and with other commodities likely to follow 2016 could be the year the commodities finally snap back.