Over the last year, we’ve seen commodity prices spike. The pandemic restricted the supply of goods while also leading to demand increases in some sectors, causing quotes to rise.
But, as you’ll learn in this article, this process isn’t a flash in the pan. In fact, high commodity prices are probably here to stay. For this reason, they should be part of every investor’s portfolio.
The Goods Problem
We live in economically crazy times. Interest rates have been practically zero for a decade while the stock market has been riding high on the back of cheap money and ever-increasing rounds of QE.
Most analysts will tell you that it won’t last. Just like everything else in economics, what goes up, must eventually come down.
However, the precise way in which the current madness will end remains elusive. The majority of people still believe that we’re headed for a colossal asset price crash. To get back to normal, stocks and real estate need to fall.
The term “normal,” though, applied under a very different economic scheme. We’re used to the idea in the West that goods have relatively constant value, while assets continue going up and up.
But thanks to economic dynamics already in play, that could be about to change. Asset prices are likely to remain high in terms of money, but not in terms of goods.
Think about this: what government is going to allow asset prices to fall? The answer is “none.” The moment real estate or stocks collapse, the government will begin to lose votes. Therefore, interest rates will remain low to keep assets propped up, probably indefinitely.
However, as asset prices rise, people will begin to liquidate their wealth. As they do, they’ll attempt to convert it into goods.
If only a small number of people do this, then upward pressure on prices will be minimal. However, if it happens at scale, then goods prices will go higher. In other words, there will be more cash chasing the same goods, leading to inflation.
The Effect On Commodities
This effect is going to hit commodities hard. We’ve already seen this in lumber, copper and cobalt in recent months. But it will be something that occurs across the board as people begin to move out of their wealth and into real, tangible goods that they can consume.
If you want to take advantage of this trend, you’ll need to move fast. To begin trading, first do an LEI check online. This can show you if you are legally registered to trade on your own behalf.
Then, begin transferring wealth into goods that are likely to rise in price in the future as people begin selling out of their stocks and shares and into other assets. Remember, once people start moving into commodities, the prices will rise quickly. You don’t want to be one of the last people to the party.
Professionals typically recommend that you keep 10 percent of your portfolio in commodities. Given the current environment, you might want to increase that to 20 percent.
Author - chris
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