Commodities are an interesting asset class.
Here is my basic theory on the subject. There are good asset classes — or what most people consider good. They are stocks, equities and housing.
Why? Because when they go up, they put money in your pocket. If your home’s value rises, you feel richer. If your stock portfolio’s value increases, you feel richer — you will spend more.
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However, for most people, commodities — such as food or energy — are what they spend money on, not what they own. Therefore, when prices of food and energy go up, people feel poorer.
This is why I think there is so much backlash and negative sentiment toward the commodities bull market. It makes many people poorer by raising prices of what they purchase. They want to see these prices decline.
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That’s why I think every time you see a commodities pullback for a few days, people call for the top in those markets. They really don’t want prices to go up.
However, commodities are in a long-term secular rising cycle. Therefore, they will continue to increase in price in the coming years.
So despite what you hear from certain sources, you should continue to purchase them during these pullbacks. Just because people don’t want prices to go up doesn’t mean they won’t continue to do so.
About the Author: David Skarica
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