Wondering about commodities? Thinking of investing, but not sure where to start? Don’t worry, we’ve got everything you need to know right here. When you invest in a company, if its stock goes up, you are happy, and if it goes down, you are not. But investing in commodities is totally different. Unlike stocks, commodities don’t perform well or underperform. Their price is dependent on supply and demand and that is what makes them such an intriguing investment.
How do commodities work
Simply put: commodities run on supply and demand. They work according to the same principles as anything else we buy, be it cars, washing machines, or milk.
Let’s take a look at oil. When the COVID-19 pandemic hit, oil prices plummeted to record lows. Why? Because everyone was locked down. Cars weren’t driving. Aeroplanes were grounded. Office buildings were empty. We simply did not need large amounts of oil. The demand for oil was low and the supply remained abundant, therefore, prices dropped.
As the pandemic progressed and it looked like everything was about to go back to normal, oil prices began to rise, even higher than they were before the pandemic. Why? Because now it was clear that there would be a high demand for oil, and the supply would be limited.
Short or long?
When we approach commodities, whether it is oil, wheat, or sugar, the question before us is simple: do we believe that the commodity price will go up or down in the future? In other words, do we think supply will be greater than demand and prices will drop, or will demand be greater than supply, and prices will rise.
Commodity shorting is possible with CFDs (Contract for Differences), which allow for speculating on price movements. The ability to trade with leverage is one advantage of CFD trading. This means that you can open a position with a small initial investment and still be exposed to the whole value of the trade. However, the full position size will determine your profit and loss.
Commodities to look at
Commodities have been reaching all-time highs in 2022, from energy to grains and precious metals. Let’s look at three commodities that have had significant increases in 2022: wheat, oil, and palladium .
Provided people with nutrients since the early days of agriculture, and in this period of time, has played a significant role in the food and beverage sector. Wheat reached its all-time high price of $1,350 in early March 2022, after gaining more than $500, or more than 60%, within two weeks.
A petroleum substance that is used in a wide range of essential and popular products such as diesel, gasoline, heating, generating electricity, and more. Much like wheat, oil prices have also soared in 2022. Early in March 2022, the price of oil skyrocketed, approaching $130 a barrel.
A rare metal used primarily, but not only, in the electronics industry. In early 2022, the price of palladium was about $1,900, and by the end of March 2022, it was circling around $2,600
Commodity demand is increasing after a decade of decline. Due to a lack of supply and increased investment demand brought on by inflation, investors are turning to commodities.