By: Kar Yong Ang
This year has proven to be as unpredictable as the last, especially for investors seeking to diversify their portfolios and hedge against inflation. The commodities market is emerging as a key area of interest for investors, with the likes of gold, oil, lithium, and hydrogen proving popular.
To mark World Investor Week taking place from 7 to 13 October, here are some key market trends and insights for savvy investors.
Unlike financial assets the value of commodities is largely determined by supply and demand dynamics. Commodities are playing an essential role in portfolios in 2024, particularly as a hedge against inflation and currency devaluation. This fundamental difference makes commodities a vital tool for diversification, especially during periods of market volatility.
The top performing commodities in 2024
1. Gold
Gold continues to live up to its reputation as a safe-haven asset, with recent financial turmoil and ongoing geopolitical tensions significantly increasing demand. The reduction in import duties by key markets like India has further boosted retail demand, reinforcing gold's position as a top-performing commodity this year.
Traders should monitor inflation rates, interest rates, and the strength of the US dollar. Since gold is traded in dollars, the price is inversely related to the USD exchange rate.
2. Oil
Despite recent price drops, oil remains a crucial commodity due to its integral role in the global economy. Geopolitical tensions and OPEC+ production decisions heavily influence the 2024 oil market. Oil remains a vital energy source, and the coming months could see significant price fluctuations, especially if geopolitical tensions escalate or sudden supply disruptions occur.
Traders should stay alert to changes in crude oil and petroleum inventory levels in key oil-consuming countries.
3. Lithium
Lithium's growing importance in the global shift to green energy is underscored by its role in the production of electric vehicle batteries. EV sales are expected to increase by 35% in 2024, driving up the demand for lithium.
However, the future market for lithium is not sufficiently liquid, making it challenging for traders to gain direct exposure. Traders can access the lithium market through investments in lithium-producing company stocks or exchange-traded funds (ETFs).
4. Hydrogen
Increasingly seen as a cornerstone of the clean energy transition, hydrogen is being positioned as a key energy carrier for the future. In 2023 alone, global direct investment in hydrogen-related projects reached nearly $ 16 billion. Studies estimate hydrogen could meet up to 12% of global energy demand by 2050.
It's important to note that hydrogen is not a traded commodity in the classical sense, and there are currently no operational markets or future contracts for hydrogen. Traders will need to explore alternative methods such as investing in companies involved in hydrogen production and infrastructure to capitalise on this emerging market.
To succeed in the dynamic commodities market, traders will need to stay informed about global economic trends, geopolitical developments, and the shifting demand for vital resources.
To avoid getting distracted, it’s best to access educational sources, which offer free learning materials, a user-centric trading experience, and the five most popular commodities to trade, including gold and oil.
* Ang is the financial analyst at Octa.
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