Commodities vs. Stocks: Which Are Easier to Trade in 2020?
In this article, our guest contributor Hollie Tomlinson discusses commodities vs. stocks in the current market environment, amid the coronavirus pandemic and economic turbulence. She examines whether commodities or stocks represent a safer and better investment opportunity for people.
This past spring, stock markets around the world crashed in rapid fashion. This happened suddenly and was the market’s reaction to the COVID-19 crisis.
In all likelihood, the worst of the worldwide market reaction has already come and gone. Markets rebounded quickly, and in some cases have had fairly strong runs in the months since the crisis struck.
At the same time, though, stock exchanges remain unpredictable in a way that is making investors uneasy. This is seen in the U.S. markets, where the overall trend indicates a fairly strong recovery. But stocks remain volatile.
That is, while U.S. indexes have seen plenty of strong days and total gains, individual stocks are proving difficult to predict.
Furthermore, the industries behind those stocks are in various stages of recovery. And in some cases could see further crashes as time goes on.
This uncertainty brings us to the core question, which is whether to some investors, stocks vs. commodities might represent a safer or at least more appealing opportunity.
Commodities vs. Stocks: An Argument for Commodities
One reason why an investor may choose commodities vs. stocks is that, at least in some cases, there’s less complexity to the commodities market. A given stock or industry might be influenced by any number of complex factors, given the current economic situation.
Workforces have shrunk. Supply chains have been disrupted. And trade agreements and business deals have been put on hold. Plus, countries are reopening at different speeds and with varying degrees of success.
And that’s all before you consider the individual metrics of any one company’s performance or outlook. Altogether it makes for a challenging environment.
With commodities, some of the same problems are certainly in play. Generally, though, the picture is a little bit simpler. You can analyze assets like gold, oil, or even coffee or soybeans more fully.
Commodities as Safe Havens
Furthermore, when it comes to commodities vs. stocks, there is a view attached to some commodities that they can serve as safe havens when the stock markets are anything but safe.
This is a feeling we saw translating into action in the earlier days of the pandemic, when reports surfaced about retail investors rushing to buy gold. Generally, they were doing so as a means of protecting their funds while the markets crashed.
Gold, the thinking has always gone, will sometimes rise as a result of investors removing funds from stocks and seeking more stable assets. Especially during times of economic turmoil.
And with the current pandemic having an impact on the price of gold, it has become one of the most important commodities of 2020. In fact, this year we’ve seen a shift in gold trading.
The most common way to trade gold used to be through a coin dealer. However, with gold now in short supply, many investors are turning to asset companies. This not only protects their investment but also generates revenue.
And while this reasoning is most commonly attached to gold specifically, some see commodities more broadly as safer when stock markets decline.
Commodities vs. Stocks: An Argument for Stocks
As much as the above does point toward commodities vs. stocks as the more reliable option in 2020, there are still some reasons investors should consider sticking with the latter.
The first is that it’s become easier to go about stock investing and be protected against against high-volatility swings. If all you do is buy a stock and try to time your sale correctly, you may indeed experience losses. The market could crash or experience a fast decline in value.
With other styles of trading, though, you can protect yourself. This is particularly true of CFD trading. Essentially, CFD trading is when you invest in the direction of a stock, profiting if you correctly predict that it will go up or down. But you do not actually take possession of the stock.
With this type of trading, it’s easy to put profit and loss controls into place as well. Meaning that you can set limits for profits or losses at which your investment will be closed. You can essentially set the parameters for your own potential gains or losses.
Some Stocks Will Benefit From the Crisis
Beyond the idea of being able to protect stock investments, it’s also worth keeping in mind that some stocks, vs. commodities, can perform well as a result of the crisis.
While the market itself remains unpredictable, there is strategic potential behind certain investments.
Investment U identified some stocks that would rebound quickly post-lockdown back in late April. Our experts pointed to Apple, Home Depot, D.R. Horton, PayPal and Delta. And we’d recommend continuing to keep an eye on strong stocks like these.
Plus, some industries have emerged in recent months that have significant long-term potential in our changing world. Such as video chat services and companies that promote long-distance work and education.
None of these are guarantees, of course. But there is such a thing as a stock that benefits from the pandemic conditions.
Our Verdict on Commodities vs. Stocks
In the end, to definitively answer which is safer – commodities vs. stocks – right now is impossible. Commodities might be more predictable and less subject to wild reactions related to the world’s current issues.
At the same time, though, proper precautions and strategic investment selection can still lead to success in a volatile stock market.
Ultimately, one thing hasn’t changed in 2020 with commodities vs. stocks: Investing comes down to making the most informed decisions possible.
About Hollie Tomlinson
Hollie Tomlinson is a finance and economy writer who specialises in global trade. She writes about the changing trends happening across the global economy in order to provide useful and actionable articles. In her free time she plays chess.