Capitalising on the Commodities Mini-Boom
With commodity prices on the rise again recently, more and more spread bettors have been hastening to exploit the emerging opportunities in energies, metals, agricultural and other commodities.
Until last week, gold was making a determined ascent towards the $1000 an ounce level and oil had powered through the $70 a barrel threshold. Now that the mini-boom has shown signs of faltering, what are the best ways to capitalise on the trends in commodity prices?
Why have commodity prices been rising?
As successive rounds of macro-economic data appeared more encouraging than expected, investors dared to believe that the worst of the recession could be over. Holdings of US Treasury Bonds were relinquished in favour of slightly less secure investments.
The outflow of funds from Treasury Bonds into riskier assets contributed to a weakening of the dollar, which in turn exerted an upward pressure on those commodity prices denominated in US dollars.
Where next for the commodity market?
The commodities rally has been founded primarily on sentiment and expectation, so can it be sustained going forwards? The past week has seen a tremor of fear about weakening global demand send commodities such as copper, aluminium and oil tumbling. Is this a temporary setback or a sign that the mini boom is running out of steam?
Those still convinced that the fabled green shoots of recovery are sprouting may feel inclined to take a long position to reap the benefits from potential further price increases.
However, some believe that the non-farm payroll and unemployment figures predicted by analysts were overly pessimistic. They argue that the actual statistics, although better than expected, are still poor.
If this is the case, a more prolonged slump in the commodity market could be due. If the drops seen this week are indicators of the future, the best opportunities for profit may be in short positions.
Take a view on commodities
Whatever your opinion about the future direction of the market, you’ll find a comprehensive range of commodities available on our platform, enabling you to back your judgement in this dynamic sector.
The above comments do not constitute investment advice and IG Index accepts no responsibility for any use that may be made of them.
Updated: 30/06/09