Commodities

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The full definition of commodities is quite complicated, but most people will define commodities as another word for raw materials. One of the characteristics of commodities is that they are freely tradable, and that who made them (provided the quality is the same) has no influence on the price. Examples of commodities are:

  • Sand
  • Oil
  • Coffee beans
  • Iron
  • Gas
  • Grain
  • Sugar
  • Gold

Much is traded in commodities. In recent years, prices for commodities have risen sharply and were, therefore, an interesting investment. There were two main reasons why the price of commodities rose sharply. One was the rising demand. This is mainly due to the emerging economies of the BRIC countries. The other was the economic uncertainty that caused investors to leave stocks and bonds and "flee" into commodities. Commodities were seen by rising demand as a relatively safe investment. Especially because commodities (as opposed to money and shares) always have an intrinsic value. The price may fall, but it will never be worth nothing because you can make something out of it. If a company goes bankrupt, or the belief in a currency is completely gone, then you have nothing left. Management gurus such as Willem Middelkoop and Jim Rogers were (or rather are) the biggest advocates for buying commodities and the above theory. If you had followed their advice on time, you could have made a nice big bang.

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