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This is the ultimate contrarian play: Why now is the time to invest in commodities

by , 28 October 2014

Commodities have had a terrible time of it over the last few years. Whilst stock markets have soared, they've left commodities trailing.

Just back track six years and commodities were soaring. Now commodities are trading at levels not seen for nearly two decades.

So why is now the time to get back into commodities?

Let's take a closer look…

Investors hate commodities

A contrarian investor looks to invest in unloved assets before other investors change their minds and invest too.

And if there’s one asset class that investors hate at the moment, it is commodities.

Have a look at the chart below. This shows you how commodities are actually nearing 80-year lows…

Chart of SJ-AIG Commodity Index

As you can see from the chart above, over the long-term, commodity prices have been trending down. But in that downward trend there are times when commodity prices have had lasting bull markets.

So what’s going on with the prices of commodities?

What makes commodity prices rise?

Generally speaking, there are three things which lead commodity prices higher…

  1. Commodities rise in price when investors think there are going to be shortages.
  2. Commodities rise in price when the world economy is doing very well.
  3. And commodities rise when the dollar is falling.

At the moment, none of these things are happening. In fact the opposite is true, Dr Steve Sjuggerud in Daily Wealth explains.

And that’s why commodity prices are under so much pressure. The picture doesn’t look great for commodities.

But it’s at times like this when the contrarian investor can see opportunity. There are glimpses of things improving for commodities in the future. And some commodities have started to ease higher in price.

These uptrends are still in their infancy, but commodities are ridiculously cheap. Investors hate them.

And for the contrarian investor looking to get in ahead of the crowd, commodities could be the place to be. If you do invest in commodities, make sure you manage your risk

So there you have it, why now is the time to invest in commodities for contrarian investors.

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This is the ultimate contrarian play: Why now is the time to invest in commodities
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