Commodity prices are rising again, led by sugar, copper, corn, wheat, and silver. Demand from emerging countries is the typically-stated reason, with an assist given to the Federal Reserve recently announcing a second round of quantitative easing (a euphemism for printing money).
Whenever you read about soaring commodity prices, it’s usually too late to profit from the trend. Traders have already factored the latest news on supply, demand, weather, and trade policies into futures prices. This is the simple reason why we avoid a commodity allocation in our client portfolios.
There are actually a few more complicated and subtle reasons to exclude commodity funds. If you’re interested in those reasons, read this article: “Why We Still Don’t Favor Commodities.”
Since writing that article, commodity investors have only experienced gut-wrenching volatility and losses. Now the media is starting to notice and write about the fallacy of these funds – one of my favorite articles on the topic was published in Business Week. Read it here.
