For traders who want to diversify their portfolio, commodities can often be the perfect counter-balance to forex or stock markets. Like trading any new market, this can mean getting to grips with how the price of commodities moves – and why. But they can offer real potential as these are the raw products that power other economic sectors.
In essence, it is the supply and demand of commodities that dictates the market. You’ll have a broad choice of commodities to trade in too. From crude oil to coffee beans, some markets can seem more favourable than others – not least in terms of how liquid they are. But commodities can be hugely beneficial addition to your portfolio – as long as you’re on top of current trends.
Is now the time to turn to commodities?
One reason for commodities being a strong addition to a portfolio is that they are products that will always be needed. Even though politics and economics can impact supply and demand, the commodities you can trade – hard or soft – can often have an underlying value.
It has become cheaper and easier to trade in commodities thanks to digital platforms including Tickmill’s MetaTrader 4. As such, it opens up more opportunities for investors to diversify their portfolios, manage risk and provide security against inflation in the months and years to come.
Gold is the ‘go-to’ commodity in H2 2020
Half the battle, however, is knowing which commodities to trade and when. Commodities aren’t immune from the impact of the coronavirus pandemic. And these are highly volatile markets as well. But there are some ‘go-to’ commodities you should trade in the current climate.
Gold is one of these. A traditional ‘safe-haven’ for investors during times of turmoil, gold is one success story of the pandemic. The precious metal has seen a surge in demand in 2020, mainly driven by the pandemic. As such, its price is now reaching highs not seen in a number of years.
Oil prices recovery in relative terms only?
As gold soars, some of the initial losers of the pandemic were commodities such as crude oil –depressed as flights were grounded and factories shut down, for example. Oil has rebounded sharply after record lows in April 2020. But did the pandemic only exacerbate a waning trend?
Shell – one of the world’s largest oil firms – has indicated that oil assets may not be worth as much as they once were. The post-pandemic national and supranational decisions may hasten oil’s decline, especially if a greener future is what people and governments choose to pursue.
Time will tell if rumours of oil’s demise are exaggerated. But it may well end up being one of the biggest losers in terms of commodities trading. In the short-term, it may still provide the profit-making potential you crave. Yet, metals could be the better long-term positions to hold.