Description

The article is written by RAMA KRISHNA VADLAMUDI, MUMBAI, INDIA (vrk_100@yahoo.co.in) and originally dated June 7th, 2006.

INTRODUCTION TO COMMODITIES:

The investment universe has, for long, consisted of stocks, bonds, fixed deposits, mutual funds, jewellery, real estate and art. Sophisticated investors deal in currencies or timber also. The lifting of the 30-year ban on commodity futures trading in India has opened yet another avenue for investors. Many analysts feel that we cannot ignore a whole asset class, that is, commodities. An analysis of worldwide flow of capital, new materials, goods and information helps one in understanding financial markets in a better manner. Internationally, commodity market is many times bigger than stock market. Commodities market is the largest non-financial market in the world. The twentieth century has seen three periods of commodity bull markets; the periods are 1906-23, 1933-53 and 1968-82. The present bull market had started in 1999. Commodity pundits are of the opinion the present bull market will last for another 10 to 15 years.

DEFINITION: Commodities are alternatively called as “raw materials”, “natural resources”, “hard assets”, “real things”, and “essentials”. World-renowned commodities guru, Jim Rogers, in his famous book “Hot Commodities” writes: “Commodities are so pervasive that, in my view, you really cannot be a successful investor in stocks, bonds, or currencies without understanding them. Commodities belong in every truly diversified portfolio. Investing in commodities can be a hedge against a bear market in stocks, rampant inflation, even in major downturn in the economy. Investing in commodities will present an enormous opportunity for the next decade or so.”