As good as gold may not hold true amid commodities conundrum
Monday, February 24, 2014
Commodities pose a difficult question for investment strategy this year.
Prices had been falling the last three years, but this year commodity funds and US exchange-traded funds have risen by 2.2 percent on average.
However, SPDR S&P 500 ETF Trust, which reflects US blue chips, fell by 0.91 percent, making investors believe the commodity market is bottoming out.
But sovereign fund China Investment Corp announced continued cuts in commodity-related investment.
The situation is in fact close to the difference between investing in gold and buying the metal itself.
The factors to consider when investing include dollar strength, inflation and a global central bank monetary policy, etc.
But the above factors will not deter middle-aged or elderly women in China from buying gold because in their eyes gold retains its value, and they will not put up their jewelry for sale just because prices rise or fall 10 or 20 percent.
But more attention should be paid to the price tendency of gold for the last one or two years.
Also, CIC has reduced more of its commodity investment in resource stocks rather than futures, such as coal or oil.
Therefore it will not affect the overall performance of commodity prices.
Instead, the fact that the fund increased its related investment in Europe and America as their economies recover is a positive signal for commodities.
It is known that European and US economic recovery will stimulate local import demand, which means exporters like China will increase their demand for commodities to meet the needs of the manufacturing industry to increase production.
That in turn will lead to a higher chance for commodity prices to bottom out.
However, two problems should be noticed: one is that part of the inventory of goods is still at a higher level, such as for coal, which will affect the performance of commodity prices.
The second is once the European and US economic recovery fails to meet market expectations, commodity prices will be hit because of weak market confidence.
And last but not least is that gold is not included in commodities because it is a sort of currency, which means it is still difficult to think of gold price as good this year.
Andrew Wong Wai-hong is an independent commentator on financial markets.