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Mastering the Commodities Markets by Francesca Taylor

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COMMODITY PRICES AND THEIR EFFECT ON FINANCIAL MARKETS

As a discrete asset class, commodities are vital to any diversified portfolio due to their unique characteristics:

  • When equity markets fall, commodity markets tend to rise, and vice versa.
  • The price of equities can go to zero – not true of commodities.
  • There is no credit risk on a commodity.
  • Commodity returns are higher than inflation.
  • Bonds and equities are negatively correlated to inflation (this increases with the holding period), whilst the opposite is true of commodities – thus commodities provide an inflation hedge.
  • Commodities are correlated with inflation, unexpected inflation and changes in expected inflation.
  • Commodity prices can rise even if the economy is going nowhere.
  • War and ...

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