Investing in global commodities? Check these points

Commodity trading allows investors to diversify their investment portfolio beyond tradtional securities. Furthermore, as an investor, you get lot of advantages if you invest in commodities, for example, protection against inflation, high leverage. However, there are multiple factors that impact the commodity market, especially in the case of global commodities.

Commodity trading has become very popular among investors over recent years. Many investors are inclined towards commodity trading as it allows them to diversify their portfolio beyond traditional securities.

Within this, many investors trade in international commodities as they can invest their money in global commodities and earn huge profits.

However, there are certain things that every investor should keep in mind before investing in global commodities, as commodity markets can be highly volatile. This is because there’s no fixed price for commodities. Furthermore, commodity prices can move up and down depending upon several factors like government policies, demand and supply, currency exchange rates, cost of production, inflation, and political reasons.

As per the current market scenario, investors should be careful about investing in oil and metals. Mihir Vora, CIO, Trust Mutual Fund, speaking exclusively to ET Now highlighted the following risk factors:

Dependency on Chinese Demand: Global commodities are closely tied to China’s economic growth and demand. Given China’s current economic challenges, including over investment in infrastructure and real estate, coupled with demographic issues and a lack of significant shift towards consumption, relying on Chinese demand for commodities like steel and oil can be risky.

US Encouraging Local Production: The United States is also actively promoting local production, especially in sectors like steel. This emphasis on domestic manufacturing could lead to reduced demand for global commodities, further impacting their prices and investment potential.

Potential Currency Devaluation: There’s a looming concern regarding the Chinese government potentially devaluing its currency to boost exports. Such a move could disrupt global manufacturing dynamics, affecting not only China’s competitiveness but also causing ripple effects in global markets, including capital flows and consumer behavior. While abrupt currency devaluations are unlikely, any such move by China would have significant implications for global commodity markets, potentially affecting investor returns.