Commodities are unique among all investment options. Because commodities are physical necessities for much of modern life, they provide a security that cannot be found in most other investment opportunities.
Commodities as a safe haven
During times of turmoil, commodities tend to act as safe havens for investors. These investors view certain commodities, such as gold and silver, as reliable stores of value, so they flock to these assets when times aren’t good. When currencies slide, nations go to war, or global pandemics break out, you can rely on gold, silver, and other commodities to provide you with financial safety.
For example, after the horrible acts of September 11, 2001, the price of gold jumped as investors sought safety in the metal. You can see a clear spike in the price of gold right after September 11.
It’s a good idea to have part of your portfolio in gold and other precious metals so that you can protect your assets during times of turmoil.
Commodities as hedges against inflation
One of the biggest factors to watch out for as an investor is the ravaging effects of inflation. Inflation can devastate your investments, particularly paper assets such as stocks. The central bankers of the world — smart people all — spend their entire careers trying to tame inflation, but despite their efforts, inflation can easily get out of hand. You need to protect yourself against this economic enemy.
Ironically, one of the only asset classes that benefits from inflation is, you guessed it, commodities. Perhaps the biggest irony of all is that increases in the prices of basic goods (commodities such as oil and gas) actually contribute to the increase of inflation.
As you can see, there’s a positive correlation between gold and the inflation rate. During times of high inflation, investors load up on gold because it’s considered a good store of value.
One way to not only protect yourself from inflation, but also profit from it, is to invest in gold.