Commodities

Commodities have suffered a spectacular reversal in fortune. Once all the rage, they have now been spurned by investors, sending prices across soft and hard commodities spiralling downwards.

The commodities bull market mapped from 1998 until 2012, as demand fuelled the Asia powerhouse, China. Since then, three things have happened to create a perfect storm for commodities across the spectrum – unusual weather patterns have affected soft commodities, stubbornly low inflation has sent the gold price tumbling – but perhaps the most significant detractor is China, or more specifically, the economic slowdown in China.

Oversupply and waning demand have sent crude oil prices, which topped $140 a barrel in 2008, to about $76. Crude is down 20 percent just this year. Gold has dropped from $1,900 an ounce in 2011 to $1,194— an almost 40 percent fall.

As legendary investor Warren Buffett likes to say, be fearful when others are greedy and be greedy when other are fearful. In hindsight, this may be looked upon as a good entry point into commodities. Long-term investors should have a small part of their overall portfolios with exposure to commodities to increase diversification — about 3-4 percent.

Chelsea Selection or Elite Rated*: BlackRock Gold & General

*by fundcalibre.com