From the Dealing Desk – Commodities: Supply and Demand

The commodities shares have been moving higher and this was due to higher commodity prices. The price of copper, crude oil, silver and the platinum group metals are all higher since the start of the year.

What makes this industry so cyclical is the supply and demand factors at play in this sector. The supply gets pushed up as the prices of commodities rise because the mining companies want to sell more at a higher price but this will lead to lower prices in the future.

Something to keep in mind when trading or owning commodity shares:

– Is the supply increasing?
– And is there a demand for these commodities?

Commodity Shares

Commodity shares should be traded for medium term or short term moves and not just held over a long term. If you buy and hold a commodity share sooner or later you will get caught in the downward cycle and these cycles can be severe.

The chart of Anglo suggests that the cycle could be turning up again or has turned which could make for some interesting and good short term trading opportunities.

Next week we will be having a look at the retail sector.

Have any questions for Sydney? Leave a comment below to get answered.