Trade in a basket of commodities

The strategy to adopt will probably be to trade a basket of several commodities, rather than any specific item. This is because to get the net effect of growth and inflation, you will need to remove a lot of the randomness in the price caused by supply factors.

These supply driven commodity markets can present extra difficulties. These markets are often turbulent.

• They can be influenced by events in remote countries, many of which can be unstable and corrupt.
• They can also be influenced by the random effects of the weather. You don't want your view that higher inflation will cause higher commodity prices to be upset by good weather causing a bumper crop in bananas.

Most of the information driving commodities can be quite obscure. It is a difficult task for investors to somehow get hold of that information. So by trading a basket of commodities, you will win some and lose some on the individual items, and allow the economic fundamentals to dominate. You would rather do that than bet on whether there will be a bad season in an unpronounceable country.


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Trade in a basket of commodities
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