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In The Money: How to invest in the red-hot commodity market

In this fortnightly series, we address readers’ queries on investing issues. This week, we look at investments in the red-hot commodity market.

Q: With the rise in commodity prices, what are some of the ways that retail investors can participate in these commodity price gains?

Riding the commodity investment wave

As people feel the pinch of the commodity price increases - from rising petrol prices to cooking oil - are there investments in the commodity market that can ease the pain?

Investing in commodities can be a way of diversifying an investment portfolio but it also comes with its fair share of risks, including natural disasters that can wipe out your gains overnight.


Commodity prices likely to rise further

As inflation surges, commodity prices are in the spotlight, and analysts and experts say the only way is up for the foreseeable future, which means pain for all of us.

Mr Avtar Sandu, senior manager of commodities at Phillip Futures, said: "We have a perfect storm for inflation as well as higher commodity prices - supply shortfalls, pent-up demand, inventories at low levels and weather affected by climate change." Another reason is that most commodities are traded in US dollars, which have appreciated as interest rates rise there. This in turn raises the price of commodities yet again.


Invest in commodities via ETFs, listed stocks and physical product

Investors can add some commodity exposure to their portfolios in many ways.

The simplest is to use an exchange-traded fund (ETF) that tracks the price of a given commodity.


Gold can hedge against higher volatility, macro headwinds

With commodity prices rising in recent months, there has been more interest among retail investors to invest in them as a means to diversify and hedge their portfolios, given rising inflation and geopolitical risk and volatility.

One way is through commodity derivatives products such as futures contracts.