Overview

Investing in commodities always seems boring to me, but it should probably be something you don’t ignore. When I think of commodities I think of gold or oil, but there’s lots of other traded inputs like wheat, coffee, and orange juice which I remember from the Eddie Murphy movie Trading Places.

Patterns

Commodities seem to have long cycles that can span from 10-15 years alternativing between bear and bull. The underlying reason has been said it’s because of simple supply and demand and the lag that happens - price is raising so make more of that thing until it staturates, sell of your excess until the supply gets low enough that demand drives it up again.

In the short term uncertainty comes from weather, wars, pandemics, and other unexpected global events.

Strategy

• If the 10-15 year supercycles are a thing, then buy-low, sell-low means you might be able to time the market if you buy and hold
• Gold tends to go up with more global stability - it typically goes up with more inflation, it tends to go up with more wars and global drama, it tends to go up when the dollar is weaker
  • This is because you get increased demand since that $100 oz of gold is now ‘cheaper’……which means more people buy which will prop the price
  • The opposite is that if the dollar is strong then demand for gold will go down, they’d rather buy other things AND international people will have to convert to a stronger dollar and therefore that gold will be more expensive to them so they would rather buy something else
  • Governments might convert cash to gold when they see wordly drama
  • Gold goes up with inflation because an oz of gold is nothing but a piece of metal, so if the dollar is ‘cheaper’ then demand should go up because that gold is ‘on sale’ until it raises to match inflation.
    • During the Weimar Republic with hyperinflation gold did lose value though, less there might be all bets are off within that crazy environment

Actions to Take

• Supposedly we are in a bull cycle that started around the pandemic. The Bear cycle before from 2008 - 2020 saw a decrease of gold of about -73%. Gold is up 80% or more since 2020.
• Some people estimate that commodities are in more demand because of the ‘green energy’ growth and computing from A.I.
• Invest options
  • Stocks/ETFs that are basket of commodities or gold
  • Gold mining companies
  • Futures contracts
• General ‘recommendation’ is have 5-10% of your money in commodities to benefit from these patterns. For example in 2022 during rising inflation commodities were the best performing asset class
• Most commodities tend to rise and fall together, so best bet is to invest in a variety instead of a single metal