Now’s Not The Time To Ignore Commodities

| November 26, 2012 | 0 Comments

As the end of the year approaches, experts are weighing in on what’s in store for the stock market.  How will the holiday season impact retail stocks this season?  Will the fiscal cliff issues get resolved in time?  How will Europe hold up?

While all these questions are important for stock investors to mull over, there’s another important asset class to consider.  In fact, this asset class seems to be flying under the radar of many analysts and investors.

One thing I’ve come to learn, it’s never a good idea to ignore the commodities market. 

A vast majority of stocks are impacted by commodities in one way or another.  And, understanding why commodities are moving can often help savvy investors make better investment decisions.

That being said, take a look at this…

Citigroup’s (C) head of global commodities research recently proclaimed the commodity ‘super cycle’ at an end.  In other words, pure, long-only strategies in commodities will no longer yield outsized returns.

Instead, Citigroup believes a more “differentiated” strategy of buying and selling individual commodities based on supply and demand is the way to go.

I completely agree, but not necessarily because I think the super cycle is over.  I still believe central banks stimulus could lift the majority of commodities for the foreseeable future.

Rather, I agree because if you aren’t looking at supply/demand fundamentals to make commodity trading decisions in the first place, you’re doing it wrong.

More than any other asset class, commodities tend to make larger moves based on fundamentals.  This isn’t going to change whether the super cycle ends or not.

To put it another way, there are still going to be plenty of opportunities to profit from commodities.

For example, some of the world’s largest investors are taking out huge positions in gold. They believe the central banks’ flooding of the global economy with liquidity will push gold prices higher.

In this case, it appears the demand for gold is significantly increasing.  As such, if you ignore commodity fundamentals, you could miss out on a trade like this.

Even better, it’s easy to use penny stocks as a proxy for several important commodities.  There are numerous penny stocks that could be used to gain exposure to gold, silver, oil, natural gas, and more.

Bottom line, don’t give up on commodities.  The ‘super cycle’ may or may not be at an end, but shrewd investors will continue to be able to profit from commodity-based trades.

Yours in profit,

Gordon Lewis

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Category: Commodity Stocks

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