3 best-performing commodities to invest in

Trading commodity CFDs allows investors to engage in the commodity market without needing to own the actual physical assets. This approach involves speculating on the price movements of commodities like oil, gold, or grains through a contract for difference (CFD), a type of financial derivative. The outcome—whether a profit or loss—is based on the change in the commodity’s price from when the trade is opened to when it is closed.

Benefits of investing in commodities

Potential for High Returns

Commodity prices are influenced by a variety of factors including supply and demand dynamics, inflation, and the overall health of the economy. In recent years, large-scale global infrastructure projects have significantly boosted demand for certain commodities, leading to increased prices. This uptick in commodity prices has positively impacted related industries and, consequently, their stock values.

Inflation Hedge

Commodities can serve as a hedge against inflation, which often affects stock and bond values by causing price increases. Historically, commodities have performed well during periods of high inflation. However, it’s important to note that commodities can be more volatile than other investment types, so they may not be suitable for all investors.

Diversified Investment Portfolio

A well-diversified portfolio typically includes a mix of asset classes to manage risk and achieve balanced returns. Commodities can play a crucial role in this mix, complementing investments in stocks and bonds. Investing in commodities can add another layer of diversification to your portfolio, as they often react differently to various economic and geopolitical events compared to traditional assets. This can help reduce overall portfolio volatility and enhance risk-adjusted returns.

Cushioning Against Market Fluctuations

When the value of the rupee declines, it costs more to purchase commodities from different regions, which can drive up prices. During periods of inflation, investors often shift their assets away from stocks and bonds and into commodities, leading to increased commodity prices. This shift can provide a hedge against market risks, helping to protect your investments from broader market volatility.

Three top-performing commodities for beginners

1. Crude oil

Once crude oil is extracted, it undergoes refining to produce a wide array of products, with gasoline being one of the most common uses for fueling vehicles. However, the scope of petroleum products extends far beyond gasoline. From petroleum, various items are made, including plastics, pharmaceuticals, linoleum, roofing shingles, ink, cosmetics, synthetic fibers, solvents, fertilizers, asphalt, and many more.

Crude oil prices are primarily influenced by supply and demand dynamics. When demand surpasses supply, prices typically increase. Conversely, when demand decreases while supply remains stable, prices usually fall. For example, during high-demand periods such as the summer driving season, gasoline prices rise, leading to higher crude oil prices. These price fluctuations create opportunities for traders to capitalize on market movements.

2. Natural gas

Investing in natural gas commodities offers diversification, as it provides exposure to a key energy source with growing global demand. It benefits from being a cleaner fossil fuel, reducing emissions compared to coal and oil. Additionally, the inherent price volatility creates opportunities for traders to capitalize on market fluctuations and potential economic growth.

Natural gas prices are influenced by factors such as supply and demand dynamics, weather conditions, geopolitical events, and production levels. Seasonal changes, economic growth, and advancements in extraction technologies also play significant roles in driving price fluctuations in the natural gas market.

3. Gold

Gold is widely regarded as a safe-haven asset due to its stability and value preservation during economic uncertainty. It tends to retain value when other investments, like stocks or currencies, are volatile. Investors flock to gold as a hedge against inflation, market instability, and geopolitical risks, making it a popular choice in turbulent times.

Gold prices are influenced by a variety of factors, including economic conditions, inflation rates, and interest rates. The gold market is diverse and expanding, with applications spanning jewelry, technology, central banks, and individual investors. This broad usage leads to fluctuations in the gold market throughout various economic cycles. Traditionally, gold has been a reliable investment and a hedge against inflation. Typically, when the U.S. dollar weakens, gold prices tend to rise.

When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.