Commodities in an Efficient Portfolio Term Paper by eddievedder

A discussion on the role of commodities in an efficient portfolio.
# 145614 | 1,387 words | 4 sources | MLA | 2010 | US
Published on Nov 18, 2010 in Business (Finance, Investment and Banking) , Economics (General)

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The paper argues that commodities are a useful component in an investment portfolio because commodity prices tend to move in the opposite direction of stock prices and can therefore be a good hedge against inflation. The paper discusses the difficulty in estimating the expected sales price of a real asset and looks at how supply shortages and surpluses can be influenced by a number of different factors. The paper addresses the supply and demand factors affecting precious metal prices, how commodity futures are different from both interest rate futures and currency futures, and how commodities can be susceptible to political factors. The paper concludes that even though gold, petroleum, and other commodities are risky, they can play an important part in hedging a portfolio. This paper contains graphs.

Determinants of Commodity Prices
Supply and Demand Factors Affecting Precious Metal Prices
Commodity Futures

From the Paper:

"Estimating the expected sales price of a real asset can be very difficult. Long-term, prices tend to revolve around the cost of producing the asset. For instance, the price of copper fluctuates around the cost of mining copper, the price of lumber revolves around the cost of manufacturing lumber, and the price of wheat fluctuates around the cost of harvesting wheat, etc (Bernstein, 2002). However, short-term, the current supply and demand situation tends to be a dominating factor, and prices often rise far above or fall far below production costs in the cases of extreme supply surpluses or shortages."

Sample of Sources Used:

  • Bernstein, Phyllis J.; The Hedge Fund Mystique: Making Money with an Investment That Goes against the Flow. Journal of Accountancy, Vol. 193, 2002
  • Beenhakker, Henri L.; Investment Decision Making in the Private and Public Sectors. Quorum Books, 1996
  • Hagstrom, Robert G.; The Warren Buffett Portfolio: Mastering the Power of the Focus Investment Strategy. Wiley, 2007
  • Liaw, Thomas K.; The Business of Investment Banking. John Wiley & Sons, 2004

Cite this Term Paper:

APA Format

Commodities in an Efficient Portfolio (2010, November 18) Retrieved August 24, 2019, from

MLA Format

"Commodities in an Efficient Portfolio" 18 November 2010. Web. 24 August. 2019. <>