LONDON (Commodity Online): Can investing in commodities insure your money during financial crisis? The recent plunge in several commodities led by gold, silver and crude oil have turned the futures trading market volatile across the globe. And people are beginning to doubt if commodities are the best bet to insulate their investment.
In the last few years, investors have parked funds in commodities as a safe diversification strategy. Experts say while commodities still continue to give good returns to investors, the unnatural surge in the prices of certain commodities should be always seen with caution and care.
Gold, silver and crude oil prices have been surging to record levels in the last two months. But last week, gold fell by 5%, silver plunged by 30% and crude oil dipped by more than 10%, turning the whole commodities market volatile and making billions of investments into heavy losses.
What led gold, silver and crude oil prices to tank? Here is what some renowned experts have to say on the volatile commodities market:
Ace commodities investor and analyst Jim Rogers: "A series of technical events led to the collapse of silver prices. Once that elephant gets out of the room, it takes everything else out with it. Whenever you see a big run-up in prices, you're going to have a sharp cut-back. It's nothing more significant than that."
Rogers says: “5% correction in gold is meaningless. These things correct 10-15-20-30% every year. Nothing unusual about that. That is the way the markets work. I do not see anything unusual. I expect there would be more correction during the course of the bull market. I hope that the bull market goes up, consolidates, goes up, consolidates, goes up and consolidates for years to come. That is my expectation for all commodities.”
Mark Luschini, chief investment strategist at Janney Montgomery Scott: “We had some soft economic data that had been accumulating over the past couple days, which kind of spooked the commodities market.”
“While you may see some temporary relief at the gas pump, oil prices won't see a sustained drop. At the end of the day, the driver for oil prices is demand. As long as we see global growth and China continues to expand, that combination is going to pull on demand for oil,” he says.
John Cadigan, a strategist on the $400 million Rydex Long/Short Commodities Strategy Fund: "When you get dramatic contagion, you see the correlation of commodities spike through the roof. Commodities certainly failed to insulate investors during the financial crisis. The stock market fell 48% from July 2008 to February 2009, while the Goldman Sachs Commodity Index, a domi nant commodities benchmark, fell 71%.”
