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Investing in commodities: What you get for your money

by , 26 May 2014

When you invest in gold and other precious metals, you're investing in commodities. And investing in these metals is very similar to investing in other commodities like sugar, cocoa, coffee and wheat. But it's very different to investing in stocks, property or art. So what makes investing in commodities different from investing in financial investments? Let's take a closer look…

Investing in commodities costs you

Investing in commodities is different from investing in financial investments.

The first main difference is you don’t get any income return from your investment, the team of experts at the Resource and Scarcity Report explain. Commodities like gold, orange juice and cocoa don’t pay your interest like shares, bonds or even a bank does.

This is an opportunity cost. In other words, you forego this interest when you invest in commodities.

Due to this, investing in commodities is less appealing when interest rates are high. Not only are you missing out on this interest, you may have other costs to pay, such as storage fees and insurance.

So unless you accept these costs, it doesn’t make financial sense to invest in commodities. Of course, if you expect the price of a commodity to jump higher, then the costs may be worth it.

The main players in the commodity market

In the commodity market, the main participants are those supplying commodities and those demanding them. There are also speculators in the market.

Central banks tend to have gold reserves. This means these banks have to pay the cost of insurance and storage to hold gold.

Generally speaking, commodity prices rise when demand outstrips supply. On the other hand, commodity prices fall when supply exceeds demand.

So there you have it, what you get for your money when you invest in commodities.

Investing in commodities: What you get for your money
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