Top 5 Commodities to Invest in During Economic Uncertainty

Economic uncertainty can be a daunting period for investors. Traditional assets, such as stocks and bonds, may not always provide the stability and returns desired during turbulent times. In such instances, commodities can offer a unique opportunity to diversify portfolios and potentially generate significant returns.

Commodities, which are raw materials like gold, oil, and agricultural products, are essential to the global economy. By investing in commodities, you're essentially placing a bet on the future price movements of these underlying assets.

During periods of economic uncertainty, commodities can offer several advantages:

1. Inflation Hedge: Commodities, particularly gold and certain agricultural products, can act as a hedge against inflation. As prices rise, the value of these commodities tends to increase. This is because commodities are physical assets that retain their value over time, unlike fiat currencies which can be devalued by inflation.

2. Diversification: Commodities can help diversify your investment portfolio, reducing overall risk. They often have low correlations with traditional assets like stocks and bonds. This means that when stocks and bonds are performing poorly, commodities may still offer positive returns.

3. Potential for High Returns: Commodities can offer significant upside potential, especially during periods of economic growth and geopolitical tensions. For example, during periods of strong economic growth, the demand for industrial metals like copper and iron ore tends to increase, driving up their prices.

In this blog, we will delve into the top 5 commodities that have historically performed well during economic uncertainty and explore effective investment strategies for each.

Top 5 Commodities to Consider

1. Gold

Gold has long been considered a safe-haven asset, particularly during times of economic turmoil and geopolitical uncertainty. Its value tends to rise when other asset classes, such as stocks and bonds, decline. This is because gold is perceived as a store of value and a hedge against inflation. To invest in gold, you can purchase physical gold, gold ETFs, or gold mining stocks.

The current price of gold in India stands at approximately ₹224,138 per troy ounce, reflecting a 0.45% increase from the previous market day. Over the past year, gold prices have risen by 32.04%, driven by factors like global economic uncertainty and currency fluctuations

India remains one of the largest importers of gold, bringing in 800-900 tonnes annually, primarily for the jewellery industry. Demand for both 22K and 24K gold continues to drive market activity

Source:- https://ycharts.com/indicators/gold_price_in_indian_rupee

Nippon India Gold ETF (GOLDBEES)

The Nippon India Gold ETF (GOLDBEES) is one of India's most popular ETFs for gold investment. It tracks domestic gold prices and allows investors to add gold exposure to their portfolio without physically holding the metal. GOLDBEES is highly liquid and offers a cost-efficient way to benefit from gold's traditional role as a safe-haven asset during economic uncertainties. With a strong performance history and low expense ratio, it is a preferred choice for Indian investors looking to hedge against inflation and diversify their investments.

2. Silver

Silver is both a precious metal and an industrial metal, making it a versatile investment. It has a strong historical track record of outperforming gold during periods of economic recovery. As an industrial metal, silver is used in a variety of applications, including electronics, solar panels, and medical devices. Silver can be invested in through physical silver, silver ETFs, or silver mining stocks.
 

3. Crude Oil

Crude oil is a crucial commodity that fuels the global economy. Its price is influenced by factors such as geopolitical tensions, economic growth, and supply and demand dynamics. Geopolitical events, such as conflicts in the Middle East, can disrupt oil supplies and lead to price spikes. Additionally, strong economic growth in emerging markets can increase demand for oil, driving up prices. To invest in oil, you can trade oil futures contracts or invest in oil ETFs.

Fact:- Asia is expected to lead global oil demand growth in 2024, with South Asia's demand projected to grow by 3.2%, outpacing China's 2.9% growth. India is emerging as a critical driver of long-term oil demand growth, overtaking China's dominance in this sector​

Source:-https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/oil/121423-asia-seen-as-oils-bright-spot-in-2024-india-to-edge-past-chinas-growth

ICICI Prudential Commodity ETF

The ICICI Prudential Commodity ETF provides diversified exposure to various commodities, including crude oil, gold, and other energy resources. As one of India’s top commodity ETFs, it enables investors to access the commodity market conveniently without engaging in direct futures trading. This ETF is ideal for those seeking portfolio diversification and a hedge against inflation in volatile market conditions. The fund's focus on key commodities makes it a valuable tool for capturing growth opportunities in commodity price movements.

4. Natural Gas

Natural gas is a cleaner-burning fossil fuel that is increasingly being used for power generation and heating. Its price is influenced by factors such as weather conditions, economic growth, and geopolitical events. Cold winters in the United States and Europe can increase demand for natural gas, leading to higher prices. Additionally, geopolitical tensions in natural gas-producing regions can disrupt supplies and drive up prices. Natural gas can be invested in through natural gas futures contracts or natural gas ETFs.

Fact:- Europe entered the 2023/24 winter with robust gas storage levels, and the addition of new LNG export capacity towards the end of 2024 is expected to stabilize global gas markets. The U.S. is set to lead in LNG export capacity expansion

5. Agricultural Commodities

Agricultural commodities, such as corn, wheat, and soybeans, are essential for food production. Their prices are influenced by factors like weather conditions, global demand, and government policies. Extreme weather events, such as droughts and floods, can damage crops and reduce supply, leading to higher prices. Additionally, increasing global population and rising incomes in emerging markets can drive up demand for agricultural commodities. To invest in agricultural commodities, you can trade futures contracts or invest in agricultural commodity ETFs.

Teucrium Corn Fund (CORN)

The Teucrium Corn Fund (CORN) is an ETF designed to offer investors exposure to the price of corn futures. This ETF does not directly invest in physical corn but instead tracks corn futures on the Chicago Board of Trade (CBOT). CORN is an excellent choice for those who want to benefit from price fluctuations in the corn market, which are influenced by factors such as weather conditions, global demand, and government policies. It's particularly useful during times of economic uncertainty when agricultural commodities often serve as a hedge against market volatility.

Why Consider ETFs?

ETFs like these provide an accessible and liquid way to invest in commodities without directly handling physical goods or managing futures contracts. They are suitable for beginners and experienced traders alike, providing real-time market exposure and diversification opportunities. Before investing, reviewing the ETF’s performance, expense ratio, and underlying asset allocation is recommended.

Final Thought 

Commodities can be a valuable addition to your investment portfolio, especially during periods of economic uncertainty. However, it's important to conduct thorough research and consider consulting with a financial advisor before making any investment decisions. Commodity markets can be volatile, and prices can fluctuate significantly due to a variety of factors.

To take your commodity trading to the next level, consider partnering with TradingBells. With their expertise and advanced trading platforms, you can navigate the complexities of the commodity market with confidence. Whether you're a beginner or an experienced trader, TradingBells provides the tools and insights necessary for smarter trading decisions. Their platform offers real-time market data, expert analysis, and customer support, ensuring you're well-equipped to succeed in the dynamic world of commodity trading.

By diversifying your portfolio with commodities and leveraging the expertise of a trusted trading company, you can enhance your investment strategy and potentially achieve significant returns.