Investing in commodities could be a good idea at any time, but when we are in times of crisis like a war, it can save you from losing everything – both figuratively and literally. The physical commodities may help you to survive, and the political situation could pull out of such lows (though they don’t usually). In this article, we’ll take a look at some things related to investing in commodities – and hopefully see why it’s a good thing to do!
How commodity prices react during war, political crises
Commodity prices tend to rise as a result of conflicts and crises. For example, natural disasters increase the need for commodities, which could raise their demand and value. The relative scarcity of certain goods also boosts price. Therefore, in times of crisis, investments in commodities are physically more appealing because they typically offer better returns than stocks, bonds, or currencies.
Since a country near our borders is at war, Ukraine faces different types of ‘disasters’, not so natural, but rather humanitarian and economical. People can’t get to the fields to grow or harvest. This situation affects their ability to produce food and other commodities. In return, not only can’t they supply domestically, but also cease trading exports. So, with Ukraine’s supply at virtually zero, some of the EU countries’ demand will increase while others may be able to source elsewhere, more expensive. Ukraine is a large exporter of corn and wheat.
Apart from food commodities, demand for energies has been skyrocketing not only from sanctions and post-pandemic mobility but during covid. See, when the war began, the West decided to sanction Russian gas and oil, which sent the price flying due to increasing fears of a supply cut.
How commodities are traded
Commodities started trading on a massive scale during World War One in 1914. This made it possible for small investors to get involved in the business without having to buy shares. With the reduced risk and increased profits, more traders turned to commodities like soybean, cocoa, cotton, and sugar around the same time WWI broke out.
A shortage of goods was a persistent problem, but some commodities like coffee had abundant supplies. This ensured that the beans were readily on the auction block at opportune moments.
If you think about it, trading goods on various markets is quite similar to trading stock and bonds online. Commodities generally pay dividends to their owners frequently when goods are bought and sold. Now, you have the offer opportunity to acquire stocks via commodities as a sort of speculation.
A good way to invest in commodities today is through the futures market (CFDs) where you trade contracts of different commodities, not individual units. Since these contracts are standardized, they can be traded internationally, which doesn’t raise any issues with price fluctuation.
Is commodity trading profitable?
Commodities are an excellent way to invest money you can afford to lose and receive great rewards, but they can also lead to losses if you are not careful. Like any other type of investment risk is involved as well as possible loss of principal. This means that there is a possibility that you could lose money even when taking into account inflation and the current state of affairs. Take for example the prices of oil. Everyone thought it would simply continue to go up when sanctions got harsher. They didn’t. A protective stop is a good way to minimize losses and be prepared for the next opportunity!
Investing in commodities can be risky because it involves betting against (or along with) institutions, but it can be potentially lucrative. On a plus note, trading commodities prompts global stability due to its power to fuel and sustain economies – making the risk worth the investment. So during times of high level of geopolitical instability, it is cheaper for investors to invest in commodities rather than purchasing stocks and bonds.
Investing in commodities like gold, wheat, and oil can have a significant impact on an investor’s portfolio. In the event of war, commodity prices will surely rise because prices are driven by external influences, but they will fall again. But they say that smart investments during wartime can lead to an even greater profit when peace comes again.
Luckily, AmegaFX has an abundance of reliable investment options available. You can trade corn, wheat, soybean, cocoa, cotton, coffee, and sugar here:
Trading CFDs comes with a high risk of losing money due to leverage, and may not be suitable for all investors.