1. Agriculture (e.g., rice coffee)
2. Metal (e.g., gold silver tin)
3. Energy (e.g., oil gas)
Some people breakdown into just 2 groups: soft and hard commodities (soft=perishable, hard= imperishable)
However, general investor like us generally invests in gold and oil because of 3 reasons.
1. Globally convergent price
2. Importance
2.1 Oil : 99 percent cost of business related to oil
2.2 Gold: Country's reserve, valuable than paper money etc.
3. Liquidity: Owing to their high demands, there are many ways to invest in gold and oil around the world
Why do we need to invest in commodity?......The answer is we believe that commodity price has negative correlation against stock price. For instance, if the stock price goes down, tentatively, commodity price will go up, especially gold; because most people look at gold as safe asset. Therefore, an investor who wants to diversify their risks will include their portfolio with commodities.
However, most of the time, we will invest in the commodity through the mutual fund since buying commodity directly is costly. For example, if you want to invest in oil, you don't need to buy an oil tank and rent the warehouse to store your oil, you will simply buy the mutual fund and get the same result.
Next, I will go in detail about gold and oil:)
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