Is now a good time to buy commodities? (2024)

Is now a good time to buy commodities?

Commodities stand to benefit from underinvestment and the clean energy transition. PIMCO has a positive outlook for commodities based on supply constraints, the transition to a net-zero economy, and their historical correlation with inflation.

The Price Is Right. Commodities had a starring role in 2022 and 2021, but lost their shine this year as China's economy sputtered. At these prices, it could be time to consider adding commodities to your core portfolio.

Purchase Precious Metal Investments.

Precious metals, like gold or silver, tend to perform well during market slowdowns. But since the demand for these kinds of commodities often increases during recessions, their prices usually go up too.

The index, which was 4 percent lower on average in 2023 compared to 2022, is expected to gain marginally in 2024 as demand strengthens. However, weaker-than-expected global growth remains a key risk to this forecast.

Investing in commodities can provide investors with diversification, a hedge against inflation, and excess positive returns. Investors may experience volatility when their investments track a single commodity or one sector of the economy. Supply, demand, and geopolitics all affect commodity prices.

You can invest in commodities in a range of ways. Today, the top three in the list of commodities are crude oil, gold and base metals.

Few assets benefit from rising inflation, particularly unexpected inflation, but commodities usually do. As the demand for goods and services increases, the price of goods and services rises as does the price of the commodities used to produce those goods and services.

Investors seeking stability in a recession often turn to investment-grade bonds. These are debt securities issued by financially strong corporations or government entities. They offer regular interest payments and a smaller risk of default, relative to bonds with lower ratings.

Most stocks and high-yield bonds tend to lose value in a recession, while lower-risk assets—such as gold and U.S. Treasuries—tend to appreciate.

Because a decline in disposable income affects prices, the prices of essentials, such as food and utilities, often stay the same. In contrast, things considered to be wants instead of needs, such as travel and entertainment, may be more likely to get cheaper.

Should I invest in commodities in 2024?

Commodity prices have been relatively flat overall since the fall of 2023. However, prices of some key commodities such as oil and copper trended higher in 2024's opening months. Commodity demand may be strengthening as the global economy improves.

Soft demand and sufficient supply of major food commodities to cap prices. Food commodity prices are expected to continue a downward trend over 2024, owing to moderate global demand and adequate supplies of major crops, particularly corn and soybean.

After three years of extreme volatility, commodities prices are set to broadly stabilise in 2024. However, adverse weather conditions, escalating geopolitical tensions and soaring shipping costs are among the risks to watch.

1. Precious metals. The lustre of gold shows no sign of fading for investors, with the shiny metal trading near its all-time high. High inflation, interest rates and geopolitical risk have pushed up demand for gold as a safe haven in times of uncertainty.

You might include commodities as one asset in a long-term portfolio that you intend to use for a future goal, such as income to help you fund your retirement. You would put a certain portion of your portfolio in commodities using this approach. You could choose to put 5% to 15% in commodities.

Uncontrollable factors such as inflation, weather, political unrest, foreign events, new technologies and even rumors can have devastating consequences to the price of a commodity. Investors investing in commodities must be able to bear a total loss of their investment.

The most traded commodity is crude oil. Crude oil is used in many products, from petrochemicals to petroleum to lubricants to diesel.

Crude oil is by far the biggest commodity market, and oil prices were the talk of the town for much of 2022. Following Russia's invasion of Ukraine, WTI crude oil prices rose to their highest level since 2013 by May 2022.

Financial Sector

This provides financial institutions with higher returns on their Credit Cards, loans and other forms of debt. Inflation can also drive asset prices up, leading to higher profits for financial institutions that invest in such assets.

Who makes more money when inflation is high?

However, food manufacturers and the agricultural supply chain can benefit from inflation. Consumer staples such as food are resistant to inflation because their products are always in demand. Agricultural companies also benefit from inflation-driven higher prices.

The Goldman report maintains a positive outlook on commodities, projecting attractive total returns of 15% by year-end, with some sectors expected to deliver returns exceeding 20%.

Cash: Offers liquidity, allowing you to cover expenses or seize investment opportunities. Property: Can provide rental income and potential long-term appreciation, but selling might be difficult during an economic downturn.

During economic downturns you want to have as much cash on hand as possible. If it is not absolutely necessary, it may be best to delay any big-ticket purchases. Big purchases, such as a car or house, typically require you to either put down a large lump sum of cash or have a hefty ongoing payment.

Generally, money kept in a bank account is safe—even during a recession. However, depending on factors such as your balance amount and the type of account, your money might not be completely protected. For instance, Silicon Valley Bank likely had billions of dollars in uninsured deposits at the time of its collapse.