Commodities as a Safe Haven: How to Protect Your Investments in Times of Uncertainty?

Introduction: Seeking Stability in a Volatile Market

In the current era, global capital markets are characterized by increasing volatility and economic uncertainty. Factors such as global inflation, geopolitical tensions, and changing monetary policies create a challenging environment for investors seeking stability and preservation of their investments’ value.

In this reality, many investors are turning to alternative channels that offer protection against extreme market fluctuations. One of the main tools used as a “safe haven” in times of uncertainty is investing in commodities.

Commodities, such as gold, oil, natural gas, and even agricultural produce, have become strategic assets in many investment portfolios. They serve as a tool for hedging risks, protecting against inflation, and in some cases, even achieving positive returns in times when stock markets struggle. By adding commodities to the investment portfolio, the investor can reduce their dependence on the stock market and create a more balanced portfolio, resistant to economic shocks.

This article will examine the advantages of investing in commodities in times of uncertainty, focusing on prominent commodities such as gold, and will also review how futures contracts can be used to gain exposure to the commodities market.

Why are Commodities Considered a Safe Haven in Times of Uncertainty?

Commodities are considered a safe haven in times of economic and macroeconomic uncertainty for several main reasons, which make them attractive to investors seeking stability and capital protection.

One of the main reasons is the low correlation of commodities to the stock market. While stock prices are affected by many factors, including expectations for economic growth, corporate profits, and market sentiment, commodity prices are more affected by factors such as physical supply and demand, weather conditions affecting agricultural production, and geopolitical events affecting energy supply. As a result, when stock markets experience declines, many commodities, especially gold, tend to maintain their value and even strengthen. This feature provides an important balance to the overall investment portfolio, reducing overall risk.

Another advantage of investing in commodities is their direct response to macroeconomic events. For example, rising inflation may lead to an increase in commodity prices, as they are seen as real assets that can maintain their value even when the value of money decreases. Similarly, geopolitical tensions may lead to an increase in oil and natural gas prices, due to concerns about supply disruptions. This ability to respond directly to macroeconomic events makes commodities an effective tool for investors who want to hedge their risks and protect their capital from the negative effects of these events.

In addition, certain commodities, such as gold, have been perceived as “safe” assets for centuries. Gold has been used as a means of payment and store of value throughout history, and it still enjoys a special status in the eyes of many investors. Demand for gold tends to increase in times of uncertainty, as it is seen as a stable asset that is not dependent on the financial system or government policy.

In summary, the low correlation to the stock market, the direct response to macroeconomic events, and the historical status as a safe asset make commodities particularly attractive in times of uncertainty. Investing in commodities can help investors protect their capital, hedge their risks, and even achieve positive returns in times when capital markets struggle.

How Can You Invest in Commodities Through Futures Contracts?

One of the main and most common ways to invest in commodities is through futures contracts. A futures contract is a legally binding agreement to buy or sell a specific quantity of a specific commodity, at a predetermined price, at an agreed future date. This is a common financial tool among institutional traders, such as hedge funds and investment banks, but private investors can also use it to hedge risks or speculate.

The basic principle of a futures contract is simple: two parties agree on a future price of a particular commodity. The buyer agrees to purchase the commodity at this price on the specified date, and the seller agrees to supply the commodity at the same price and on the same date. For example, an investor who believes that the price of oil will rise can purchase a futures contract on oil at the current price. If the price of oil does rise, the investor can sell the contract at a profit before the expiration date.

Futures contracts allow investors to gain exposure to the commodities market without physically holding the commodity itself. This means that an investor can invest in oil, gold, or corn without worrying about storage, transportation, or insurance of the commodity. In addition, futures contracts allow for leverage, meaning that the investor can control a large amount of commodity with a relatively small investment. However, it is important to note that leverage increases both the potential for profit and the potential for loss.

It is important to understand that futures contracts are complex financial instruments, and that investing in them involves significant risks. Commodity prices can be very volatile, and an investor may lose their entire investment if their forecast regarding the direction of the price proves to be incorrect. Therefore, it is recommended that investors conduct thorough research, understand the risks involved, and consider consulting with an investment advisor before deciding to invest in futures contracts.

Which Commodities Have Shown Strong Performance During Crises?

During periods of economic crises and geopolitical uncertainty, certain commodities tend to perform strongly relative to other capital markets. This trend stems from the fact that these commodities are perceived as safe havens or that demand for them increases as a result of the crisis itself.

One of the most prominent commodities that perform well during crises is natural gas. In the past year, for example, there has been an increase of over 50% in natural gas prices. This increase was partly due to the war in Ukraine, which caused disruptions in the supply of natural gas to Europe, and consequently an increase in demand and prices.

Gold is another commodity traditionally associated with strong performance during crises. In the past three years, gold prices have jumped by about 73%. Gold is perceived as a safe and stable asset, and therefore many investors turn to it in times of economic uncertainty. Demand for gold increases as investors seek to preserve the value of their capital and protect it from inflation and declines in stock markets.

Silver has also shown impressive performance in the past three years, with an increase of about 43%. Similar to gold, silver is also perceived as a safe asset, but it is also used in industry, so demand for it is also affected by economic growth.

Other commodities that have shown strong performance in the past year are coffee, with an increase of about 87%. The rise in coffee prices was partly due to extreme weather conditions that damaged crops in key coffee-producing countries.

Wood and copper have also shown high performance, especially due to their connection to the construction and industry sectors. Demand for wood and copper is affected by economic growth and investments in infrastructure.

These data reinforce the perception that commodities are not only a tool for hedging risks, but also an investment opportunity with real profit potential. In times of crisis, certain commodities can show strong performance and be a source of diversification and improved returns in the investment portfolio. However, it is important to remember that investing in commodities involves risks, and thorough research should be conducted before making investment decisions.

Why is Gold Considered the Ultimate Store of Value?

Gold holds the title of “ultimate store of value” for historical, economic, and psychological reasons that intertwine. For thousands of years, gold has been considered a treasured and valued asset, and its status as a safe haven has only strengthened in the 21st century. It is not just a precious metal used for jewelry or in industry, but a financial tool that conveys stability and security, especially in times of inflation, geopolitical crises, or market crashes.

One of the main advantages of gold is that it is an asset that does not yield current returns (like dividends), and therefore is not directly affected by changes in interest rates. This feature makes it particularly attractive when central banks maintain a low or uncertain interest rate environment, as the alternatives for investment become less attractive. Investors turn to gold as an alternative to low-interest-bearing investments, which increases demand and raises its price.

Another advantage of gold is its scarcity. The amount of gold in the world is limited, and it is difficult to significantly increase its supply. This scarcity ensures that the value of gold will be preserved over time, even when the value of other assets decreases.

In addition, gold enjoys broad global demand. It is used as a central reserve in central banks around the world, and institutional and private investors hold gold as part of their investment portfolios. The broad global demand ensures high liquidity for gold, making it easy to buy and sell at any time.

Gold is also perceived as a hedge against inflation. When inflation rises, the value of money decreases, and the prices of goods and services rise. Gold, on the other hand, tends to maintain its value and even rise in times of inflation, as it is seen as a real asset that is not dependent on the financial system.

Moreover, gold enjoys a reputation for stability and reliability. It has been used as a means of payment and store of value for thousands of years, and it still enjoys a special status in the eyes of many investors. This reputation gives gold a psychological advantage over other assets, and it contributes to the high demand for it in times of uncertainty.

According to the latest data, gold has shown an increase of over 73% in the past three years, which indicates investors’ confidence in this asset even in times of financial turmoil. For all these reasons, gold continues to be considered the ultimate store of value, and an essential asset in any balanced investment portfolio. For more information, you can read about What Makes Gold the Ultimate Store of Value?

Gold vs. Bitcoin: Who is the Store of Value of the Future?

In the last decade, with the development of technology and the emergence of cryptocurrencies, Bitcoin has emerged as “digital gold” and claimed the crown of the store of value of the future. Bitcoin, like gold, is considered a limited asset – gold due to its physical scarcity, and Bitcoin due to its built-in issuance limit (only 21 million coins). Both offer an alternative to the traditional financial system, controlled by governments and central banks.

However, there are significant differences between the two assets. Gold enjoys a long history of stability, broad institutional acceptance, and global liquidity in the markets. It is recognized as a safe asset by investors, central banks, and financial institutions around the world. In contrast, Bitcoin offers higher mobility and innovative technology, but it still faces extreme volatility and evolving regulation.

One of the main advantages of Bitcoin is the ability to transfer it quickly and easily around the world, without the need for intermediaries such as banks. It also offers greater privacy than traditional payment methods. However, Bitcoin still suffers from significant instability, and its price can change sharply in a short period of time.

In terms of hedging risks and protection in times of crisis, gold continues to lead. It is perceived as a more stable and reliable asset than Bitcoin, and therefore many investors turn to it in times of economic uncertainty. Bitcoin, on the other hand, is a bold alternative for investors seeking high returns and innovation, but are willing to take a higher risk.

In summary, gold and Bitcoin both offer potential as stores of value, but they are suitable for different types of investors. Gold is suitable for investors seeking stability and capital protection, while Bitcoin is suitable for investors seeking high returns and are willing to take a higher risk.

Conclusion: Commodities as a Smart Investment Tool in the Current Era

In today’s capital market, characterized by increasing uncertainty, sharp increases in price indices, and overall volatility, investing in commodities is not just a tool for hedging risks – but a strategy in itself. Incorporating tangible assets, such as gold, natural gas, or agricultural produce, into the investment portfolio may provide security, balance, and even real profit.

Gold continues to serve as a stable anchor and a true store of value, while innovative alternatives like Bitcoin offer new – but riskier – channels. The choice between the different types of commodities depends largely on the investor’s risk tolerance, their investment horizon, and their understanding of the dynamics of the commodities market.

A smart investor in the current era is one who understands