Since I started investing, I have kept myself away from commodity investment. I even remained aloof from precious metals. Not that these things shouldn't be part of one's portfolio,in fact gold has given consistently good returns for a few years. It is time to tell if such a run will continue.
But should such things be part of a long term portfolio of an investor like me? Taking stock of macro economic policies, understanding currency movements and making sense of other political decisions could be a matter of luck, which may not work most of the time.
Takes take a few examples:
1> Investing in wheat:
Monsoon was wonderful, wheat production was good thus prices are supposed to fall in near future. We sell our stock either at marginal profit or little loss. Suddenly news breaks out about a drought in Russia and wheat prices starts mounting. In the hope of wonderful returns we enter into wheat again. Next day government out of their whim reduces the import duty on the dream commodity. Price tumble!
2> Investing in Gold:
Stock market is crashing! Gold is the only rehab now. Gold price jump with joy and investor in the hope to mint more money keep the precious metal pump. Dollar is another paper gold that people like and acts as a substitute to gold and gold is sold in international market in Dollars. Indian government has artificially kept rupee so low to support export & IT industry (lobby). But with the FDI & FII pouring in, we cannot keep our currency so low for every. INR will appreciate against dollar some day and effective gold prices will appear coming down.
This is not a future prediction. It is just my analysis of gold prices from an Indian investor perspective.
Clearly, with such a huge uncertainty ahead, I cannot consider gold a safe bet for my long term portfolio. It may be my one of the few investment mistakes; let it be, but I will stick to my investment objectives at least.
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