Category: Fundamentials

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One favorable aspect of dealing in commodities is that unlike stocks or bonds may do on occassion their value will never go to zero.

Since physical commodities are materials either grown by man, as wheat, corn, sugar, and coffee are, or are extracted from the earth like gold, silver, crude oil, and copper, or processed into by products as gasoline from crude oil is, commodities are always in demand and will therefore always have value.

Of course, the prices of commodities will rise and fall depending upon market supply and demand conditions. They may also change price levels on the anticipation of events, say as a hurricane approaches oil drilling platforms in the Gulf of Mexico or on rumors. As an example, rumours about a large market player being forced to unwind positions in a specific market may well move the price level in that market.

But the point is that there will always be intrinsic value with physical commodities. No one is about to declare that copper or gold has become worthless and start giving it away. Occasionally stock companies do fail and stocks do become worthless, so there is an immediate advantage in trading commodities. There are price points that commodities are very unlikely to go under, at least for long.

This gives commodities some interesting possibilities as an investment asset class for investors who can afford to take a longer view of the investment world.

So with this built in price advantage why are commodities considered so risky to trade?

There should no longer be any doubt that global warming and climate change are under way.

While scientists and government officials around the globe may still argue as to what is causing global warming few will still declare that the earth is not undergoing climate change due to raising temperatures.

This is serious business that has grave implications for commodity prices.

There are already serious dought conditions in Australia, parts of the United States, South Africa, parts of China, and elsewhere.  We are also seeing too much rain in some regions, including parts of China and  Indonesia.

If you are going to be trading commodities over the next quite a few years  you had best keep up with the consequences of global warming. Weather has always been an important element of the fundamentals in commodity  trading .

It likely will be even more important in the immediate years to come.