Why raw materials are not suitable as capital investments

If you can sleep better with gold in the safe, you should buy the precious metal. But basically, commodities are an asset class that can be done without.

Dhe low interest rates and the reluctance of many investors to buy stocks encourage the search for alternatives. The recent rise in the price of gold, as well as the sharp fluctuations in the price of crude oil, are once again attracting more attention to investments in commodities after commodities had attracted little interest in recent years. Even among experts, opinions differ widely as to whether raw materials are suitable as capital investments. Opponents often refer to an old bon mot, according to which investments in raw materials are a bet against technical progress, because technical progress goes hand in hand with falling demand for raw materials in many areas. Proponents see commodities as a hedge primarily against inflation risks.

One thing is undisputed: investors who are interested in commodities should accept a few basic rules. The first rule is that investors should consider the very different characteristics of commodities. A basic distinction is made between four categories: energy, industrial raw materials, agricultural raw materials (which often differentiate between agriculture and live cattle) and precious metals. Some traditionally thinking followers of gold do not regard the precious metal as a raw material but as a currency, but gold has long ceased to be used as a currency in practice and, like other precious metals, it is also used industrially. Therefore we want to consider the precious metals as a category of raw materials.