Commodities

Commodities such as gold, silver, copper, oil and even wheat have long been used by investors as a form of asset diversification. It also can serve as a useful hedge during times of market uncertainty. In other words when the stock market falls and investors panic, quite often there will be a flow of ‘hot money’ away from equities and towards other asset classes including fixed income products (bonds) and commodities. Gold in particular is generally inversely related to the stock market and so can act as a hedge, albeit imperfect.

Of course as an investor you probably don’t want to buy the physical commodity but simply want to gain exposure to the underlying share price. After all taking delivery of 100 barrels of Brent Crude is clearly impractical which is why there are a number of products including futures and ETFs which will allow you to attain exposure to the price of the commodity without having to physically own it.

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