Reasons to be Bullish on Commodities

By Advisorymandi Forbidden
12-June-2019 5:25:22 PM
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Commodities are like the stocks and other financial securities whose value goes up and down over the long-&short-term. In India, the commodity market is not as popular as the equity market. Even though there are near around 2 percent of people are invested in the stock market, the volatility level in stocks become a larger concern for mid-&lower-class investors. In such times, it is not wise to follow the crowd and invest in the midst of the ups and downs of the equity market. Some experts suggest that investing in commodities can bring fruitful results in the life of investors who are looking to build financial wealth over time.

However, the volatility level in the commodity market is very high but there are reasons or factors to be bullish on commodities and invest in it. With the help of this article, we’re going to guide you on the major reasons for investors to be bullish on commodities. Some of the reasons are as follows:

 

Overpopulation

Undoubtedly, we are on the verge of population explosion. Human population raising at a high-rate that it will exceed the carrying capacity of ecological setting. In that environment, people will need more things for survival such as water, food, social amenities, and transport, etc. That means the need for commodities will rise with the rise in population. When the demand for commodities increases the prices will increase simultaneously.

So, from the investor’s point of view, the demand for commodities will rise over time hence, it will be right to invest in commodities.

 

Industrialization

Emerging economies – Brazil, Russia, India, China, and South Africa – often referred to as BRICS are emerging economies which have a sizeable impact on the global economy. If we talk about GDP (Gross Domestic Product) then the combined GDP of all these five nations is already higher than the USA and the European Union. Along India, the other four countries are emerging leaders who are welcoming foreign direct investments. These nations also happen to be the frontrunners of the modern day industrial revolution.

Now the good thing here is with the industrial revolution, most factories and plants are built using commodities such as industrial metals (Copper, Lead, and Zinc), crude oil, and other commodities. Apart from this, commodities are also highly used as raw materials.

With the increasing demand of commodities, the prices will automatically surge which will benefit for investors to invest in current prices.

 

Urbanization

At the present moment, half of India’s overall population is residing in urban cities. To accommodate the population in urban areas, the more houses and buildings are being built, which lead to the skyrocketing demand of commodities such as iron and steel. These commodities extensively use in construction. As a result, the real estate sector is booming and expected to rise even higher in the future. This boom is expected to sustain for several years if not decades.

Once again, from an investor’s point of view, an upward trend can be seen in the prices of commodities.

 

Inelasticity

There is a concept of elasticity in economics which indicates the change in demand for a good fluctuates with its price. So, if there is a change in demand for a good due to change in its price, the process said to be elastic. But, with the commodities, things are quite the opposite. Commodities are inelastic goods. It is because some commodities are necessary for our daily lives. For instance, the demand for heating and electricity is mandatory. Similarly, the demand for food is also necessary. It is not like when such commodities are overpriced, people will stop buying them.

From an investor’s point of view, having invested in such commodities can offer some decent dividends in the future.

 

Safest Bet

In Indian culture, gold and silver are considered one of the safest investment options from thousands of years. To Indians, possession of gold and silver tell the living standard of an individual. Also, it has noticed that gold and silver are the safest bet against inflation as well. These two commodities have risen over the years. If there is any probability of collapsing of fiat currency within the nation, the gold and silver would simply skyrocket. So, technically, there is no harm to invest in bullion commodities.

 

Works against Recession

When there is a possibility of a recession in the country people start investing in commodities and minimize their equity-based investments. By keeping commodities in your portfolio you can actually manage your risks that could harm your future returns.

So, overall, investing in commodities is another way to get potential returns with minimum risk of losing capital in fluctuations of stocks. Nevertheless, it is all your decision. But, we would recommend you to do analysis on your end to ensure that the above reasons justify your actions of investing in commodities or not.

If you have any query or would like to add something then we would request you to do not forget writing to us in the below comment section.

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Author: Advisorymandi

AdvisoryMandi is India's most trusted Stock Market Advisory marketplace covers NSE, BSE, MCX & NCDEX. Invest with confidence and harness the power of AdvisoryMandi to make smarter investment decisions in Stocks, Indices, Commodities, Forex & IPO.

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