Investors Check Out of Commodities

As the first quarter of 2013 comes to an end, investors begin to notice a decline in commodities index by 1.1%. For several years, demand for commodities has increased in a steady pace. However, this quarter reflects otherwise. Several factors that contribute to this decline are the decrease in China’s demand for commodities and the strengthening of U.S. currency; a stronger dollar leads to more expensive commodities. This behavior is different from the trend of the overall market. While stocks reflect a recovering market, the demand for commodities portrays one that is weakening. There is also a noticeable decline in the number of investors who treat commodities as financial assets; stocks have better returns with 11% increase in S&P 500-stock index. Furthermore, J.P. Morgan’s analysts have tracked low volumes in some of the most liquid commodities, namely oil, gold, and copper.

Investors often refer to the commodities super-cycle theory as a measure of the market’s performance and the value of commodities. However, it may be unexpected that its current performance is not in-sync with the performance of stocks. For example, the trend of copper’s value is often used as an indication of the economy’s activity. This was not the case for the first quarter because copper fell 6.8% this quarter. Although investors fear the decrease in China’s demand, this decline is brief as China continues to expand its economy.

 

Written by: Melody Mark

Source:

Berthelsen, Christian. “Investors Check Out of Commodities.” Wall Street Journal. Dow Jones & Company, 31 Mar. 2013. Web. 31 Mar. 2013.

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