Commodities

Commodities are a great way to provide additional diversity to a portfolio as they have historically had a direct negative correlation to stocks. History has shown that any bull market in stocks is met with a bear market in commodities and vice versa. The 20th century's longest bull market in commodities for example began in 1933, the year of the great depression.

The second longest bull market in commodities started in 1966 when the DOW closed at 995.15 and lasted until the early 80's when the DOW was around 800. Always remember though, past performance is not indicative of future results.

A possible explanation for this negative correlation is that regardless of the state of the economy (bear market in stocks, rampant inflation or downturn in the overall economy), commodities maintain demand long after the demand for consumer items weakens. In addition, the high price of commodities reduces the margins of companies that utilize commodities. For example, car companies use various metals, food companies use food commodities to produce their final product, building companies use copper/lumber/steel. While it is true that part of the cost is passed onto the consumer, part of the higher cost is taken directly from the bottom line. (There are exceptions of course, companies, such as oil companies, whose entire business is the production of certain commodities, pass on the entire increased cost to the consumer.)

Another explanation for this negative correlation is inflation related. Assets do not benefit from rising inflation, particularly unexpected inflation, but commodities usually do. As demand for goods and services increases, the price of goods and services usually rises as well, as does the price of the commodities used to produce those goods and services. Because commodities prices usually rise when inflation is accelerating, investing in commodities may provide portfolios with a hedge against inflation.

Trade now Indices , aluminum, cocoa, coffee , sugar and concentrated orange juice  with WPP Inc for only 10$ per trade.

Minimum  Account Balance :$2.500 recommended account balance $10.000
Please get in touch with our dealing desk to learn more about contract specifications , margin requirements and trading hours .