In Singapore, commodities are often seen as a predictor of market movement. In other words, commodities can be used to forecast whether the stock market is likely to go up or down. There are several reasons for this:
- Commodities are tangible assets that traders can physically trade.
- Commodity prices are usually based on global supply and demand dynamics.
- Traders can use movements in the commodities market to gauge overall investor sentiment.
In Singapore, the commodities market is a great predictor of the movement of the stock market. This is because commodities have higher liquidity and transparency in the market. This means traders can trade commodities more quickly and at a lower cost.
The prices of commodities are also determined by demand and supply. When there is an increase in demand for a particular commodity, the price will increase. Similarly, when there is an increase in supply, the commodity’s price will decrease.
How commodities predict market movements
The following are examples of how Singaporean investors use commodities to predict market movements.
The price of gold is often seen as a barometer for risk aversion.
Gold is regarded as a safe-haven investment during political and economic uncertainty. When the price of gold increases, it usually indicates that investors are becoming more risk-averse and are looking to hedge their portfolios with safer investments. In Singapore, this usually leads to a decline in the stock market as investors sell off their shares and move their money into commodities such as gold.
The price of oil is often seen as a predictor of economic growth.
Oil is one of the most essential commodities in the global economy, as it is used to produce both energy and plastics. A rise or fall in oil prices can be linked to changes in economic growth rates. For example, when the price of oil goes up, it usually indicates that the global economy is growing at a healthy rate; conversely, when the oil price goes down, it usually means that the global economy is doing poorly.
The price of silver is often seen as a leading indicator for industrial commodities.
As industrial commodities are mostly made out of base metals like copper and zinc, an increase in the price of silver can often signal an increase in industrial production (and vice versa). This is because the price of silver largely follows movements in the price of raw materials such as zinc and lead. It can thus be a helpful tool for investors looking to predict market movement in Singapore.
Factors that influence commodity prices
It would be best if you looked out for a few things when it comes to commodities. The most important thing is to watch out for news events that could impact the demand and supply of commodities. If there’s a natural disaster in a major oil-producing country, oil prices could increase. Similarly, if there is a financial crisis, the price of gold could go up.
It is also essential to keep an eye on the trend of the commodities market. If you see that the price of silver or oil has been on an upwards trend for a couple of months, then it might be time to invest in that commodity.
However, when investing in commodities, consider that there will be higher volatility than the stock market. You need a high-risk appetite and only invest if your portfolio can handle sharp price movements without affecting its overall performance.
Investing in commodities is exciting and profitable but comes with its own set of risks. If you are a newbie and want to buy commodities online, we recommend contacting a reputable online broker from Saxo Bank and trading with a demo account before investing your own money. You can use the same demo account to practice stock trading, so it offers multiple benefits to novice traders.