Commodities such as Gold and Oil have ‘enjoyed’ an incredible ride over the past ten years or so.
Nobody could have predicted what an increase in price these two finite resources would have experienced at the end of the 20th century.
So what now for Gold, Oil and other precious commodities? Well, in my view there are two, or three, ways of looking at it.
Firstly, even though the price of the two main commodities is incredibly high due to various different factors that is not necessarily a reason to not invest. Some investors have been thinking that the price of Gold is ‘too high’ for the last ten years and have been left perpetually waiting for it to come back down – it never happened.
Secondly, commodities such as gold, oil and silver are finite resources. They are likely to become ever more so in demand than they are even now. That will surely push the price up.
Finally, and probably most importantly, the price of commodities and the way they are traded is pretty different to many other assets. The prices can fluctuate wildly from day to day. Following the prices of these commodities on a day to day basis is certainly not for the faint hearted. As I write this blog, on 22 June 2012, I see the price of Brent Crude Oil has dropped 4.1% in a day. That is not unusual.
So is it a good time to invest in commodities? Well, I think they have a place in a well balanced portfolio and like investments in general, could make up an important part of your portfolio if done in the right proportions.