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At Guangdong International Capital we see commodity trading as an important aspect of diversification within a portfolio. As a combined asset class, commodities offer investors an alternative to the more traditional investments such as stocks and bonds. Governed by the laws of supply and demand, the commodity asset class is made up of raw materials used to create products that are consumed as part of mankind's daily routine.
During the recent period of market volatility commodity prices have outperformed stocks and bonds forcing many investors to dedicate their assets towards the opportunity. In fact history has shown that commodities as a whole display a negative correlation to stocks and bonds, that is that commodities perform well in a down stock market and perform poorly when stocks are more bullish. The fluctuation of assets classes is exactly how investors are able balance their portfolios to create true diversification, reduce exposure to risk and to increase returns regardless of economic conditions.
Global demand on our everyday commodities is increasing and is set to increase further into the foreseeable future. Increases in demand are the result of economic activity within the developing world as nations invest in infrastructure and populations rise, commodities such as oil, steel and wheat will test the resolve of global supply and distribution.
What this means for investors exposed to commodity trading is quite simple. As demand for a commodity increases supply and distribution decreases. The decrease of supply and distribution naturally forces the commodity price to rise. Capitalizing on price increases, if positioned correctly can return modest gains to the investor.