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5 Things to Consider Before Investing In The Commodity Market
There are many things to think about before making an investment... in anything. After all, your money is on the line. As an investor in commodities, you don’t want to buy 100 units of cattle only to find out the cattle are diseased. And you don’t want to discover the corn you’ve purchased is of poor quality. Take a look at the five things you should consider before investing in the commodity market.
1. Risky Business
Commodities can quickly become a risky investment because they can be affected by events that are difficult, sometimes impossible, to predict. These include unusual weather patterns, natural disasters, epidemics, and world conflict. The market for grains, for example can be affected during summer months or weather transitions. Commodity price spikes have also been associated with tension between countries. Don’t be afraid to invest because of these things, rather, take them into consideration and learn to allocate appropriately.
2. Know Your Commodities
Investing in specific commodities can be risky without proper knowledge. Some commodities like precious metals such as gold are more popular and desired. Gold has a reputation for being a reliable, dependable metal with transferable value. Copper and crude oil are also said to be good investments as they are used worldwide for many purposes.
3. Outside Influences
Global economic development, technological advances and market demands for commodities can all have an influence on prices of staples such as oil, aluminum, copper, sugar, and corn. Oil, more than others is notorious for fluctuations in price. Economic downturns, production changes, and emerging technological advances such as wind, solar and biofuel that aim to replace or complement crude oil as an energy provider should also be considered before investing.
4. Basic Economic Principles
Know the basic economic principles involved with the commodity market. Lower supply equals higher prices. To find out any major disruptions in supply such as diseases and health scares, follow livestock patterns and statistics. Read the latest headlines and analysis of the commodity market. Know what you’re dealing with.
5. Stay Informed
There’s nothing more important than being knowledgeable of where you’re putting your money. Don’t make uninformed decisions otherwise your investments will fall under the categories of gambling or speculation. Using futures, or hedging, investors can secure insurance against unstable prices.
If you’re thinking about investing in commodities, consider these things and you’ll be on the fast track to commodity success.
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