“Commodities don’t produce anything the way traditional investments do (i.e., profit, dividends, rent),” says Asher Rogovy, Chief Investment Officer for Magnifina
1) The value of commodity assets is quite simply the price of the commodity, and during inflationary periods all prices are rising.
2) We don’t consider commodities a suitable asset class for investing. They may be used to hedge risk against price changes, however.
3) Commodities don’t produce anything the way traditional investments do (i.e. profit, dividends, rent). Any profit from trading commodities comes at the expense of other traders. It’s a zero-sum game.
4) While commodity prices may be volatile in the short-term, they revert to an equilibrium level relative to their value to businesses over the long-term.
Businesses, on the other hand, grow over the long-term. They reach new markets, develop new products, and increase the efficiency of their own operations. Additionally, stocks are known to provide protection against inflation over the long-term.
5) Commodity trading is extremely competitive, which can pose unsuitable risks for many client accounts. Commodity trading also typically utilizes leverage which, again, poses risks that may not be suitable for most accounts.