Make Money In Commodities

Commodities might be an ideal asset class to diversify investments and mitigate portfolio risk in such volatile times.

- Shripal Shah

We have seen investors getting bruised in both debt and equity markets. Further, the realty sector has been in a bearish phase over the past few years. The question, therefore, is ‘Should the investor look beyond the traditional asset classes?’ My experience is that in such volatile times, commodity as an investment opportunity is worth considering. Recently, gold crossed the `34,000 per 10 gram mark in the Indian market, attracting investor attention. Barring this, investors hardly think of commodity as an asset class.

Investment in commodities such as gold, silver, crude oil, and copper, widely traded in international markets, can help one diversify their portfolio and mitigate risks. For the sake of simplicity, we will call such commodities as ‘international commodities’. When one invests in international commodities in the domestic market, they also invest in the US dollar, because Indian prices of international commodity are a function of international prices of the commodity in US dollars, as well as value of the US dollars in terms of the Indian rupee.

RISING COMMODITY PRICES

In the event of a trade war (which is currently brewing between the US and China), geopolitical turmoil (Gulf region, Brexit), cross-border tension etc, currency valuations (more so, the greenback) are bound to get impacted, resulting in higher prices of international commodities in the domestic market. During such events, all other asset classes take a hit, exposure to international commodities in domestic market comes in handy to an investor to help mitigate portfolio risks (protect overall portfolio losses).