About a year ago, I tweeted about how the 10-year treasury yield is slowly increasing because of high inflation expectations. Well, the US inflation surged to a new 40-year high of 8.5% in March and that 10-year treasury yield is now at 3.128%.
The S&P500, Dow Jones, Nasdaq, Bitcoin, everything is down from their all-time highs. Now I know I said Bitcoin is an inflationary hedge and yet Bitcoin is currently down 50% from its ATH but I wasn't wrong about commodities.
So in this issue, let's dive deep into commodities and should you have exposure to them 👇
What are commodities?
- Commodities are economical goods that have full fungibility - meaning the market treats them the same with no regard to who produces them. There's little differentiation from one producer to that of another
- Commodities can be classified into 4 main types:
- Energy - Natural Gas, Crude Oil, etc.
- Precious Metals - Gold, Silver, Platinum, etc.
- Agriculture - Grains, Livestock, etc.
- Industrial Metals - Copper, Aluminium, Zinc, etc
Investing in commodities
- It's all about supply and demand
- Almost by definition, if inflation is high, it means that commodities prices are rising. This is because when the spending and incomes grow faster than the production of goods: prices rise!
- There are many ways to invest in commodities like buying individual stocks in companies that produce them but in this issue, we will be focusing on ETFs and mutual funds because they offer you a broad exposure to different types of commodities
- Let's have a look at the performance of the Bloomberg Commodity Index vs the S&P 500