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5 Reasons for the Commodity Boom: ETFs to Play

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After a decade of underperformance, commodities are experiencing a huge rally thanks to optimism over global economic growth, reflation trade, widespread vaccination, the chances of approval of more COVID-19 antiviral pills, rising consumer confidence and higher housing price. The Dow Jones Commodity Index jumped about 70% in the year to June. Let’s delve a little deeper.

The massive liquidity injections by the Fed and the resultant subduedness in the strength of the greenback as well as fiscal stimulus have also been driving the commodity prices. Investors should note that most of the commodities are priced in the U.S. dollar and hence outperforms when the U.S. dollar remains subdued.

If this was not enough, reflation trade was palpable across the globe with the United States and Europe drawing attention lately. Commodities are often viewed as a hedge against inflation. Moreover, higher inflation is feared to weaken corporate earnings, which in turn, would hurt equity prices. In such a scenario, commodities may gain as an alternative investment.

A global push for carbon-free economy has also played its role in booting the commodity prices. The very socially responsible drive may cause a supply crunch in the commodity space, which is boosting prices. Lithium is one such commodity, which is proving to be a great beneficiary of the boom in the battery market.

Demand for the materials used in electric cars and renewable-energy storage has surged lately, while miners are striving hard to boost supply.Aluminum prices........

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