Volatility in Commodities and How to Deal with It

These days, the more modern the world seems to get, the more we have more people who do not care about depth details but want good results in the end.

However, can the same result be achieved when an inch-to-inch observation is taken keenly with when one doesn’t care about the details? Absolutely not. And that’s why today, we will take you through volatility in commodities and how to have your way around it.

Before we dive right into the hows, what is Volatility in Commodities?

Volatility in commodities can be referred to as fluctuation in prices as time changes. This condition can be likened to the exchange rate. One minute a certain currency would seem to be matching steps with the other, the next, it goes below or even above. Although, there are factors that control these processes. It doesn’t just happen on its own, and that further leads us to factors behind market fluctuations.
It follows both technical patterns, economic facts and news speculations.

Some Factors That Affects Volatility in Commodities

1. Climate Conditions

Human factor is one thing, the uncontrollable circumstances are another. And that exactly is where climate conditions fall. The rate at which thick clothes get patronized during the rainy season won’t be the same with non-rainy days.

So climate factors play a huge role in commodities pricing.

2. Demand and Supply

In every business enterprise, demands and supplies play a crucial role in determining their life span. Once demand for a particular commodity reduces, there are chances that it is approaching its extinction.

Changes in supply and demand can lead to fluctuations in commodity prices. Factors such as weather conditions, geopolitical events, and shifts in consumer preferences can impact supply and demand dynamics.

3. Government Factors

While other factors might seem like they are the more reasons responsible for market volatility, it is also very important to know that government bodies equally play a huge role in the picture.

For example, towards the end of 2021, the Nigerian government announced a new policy that conditioned Nigerians with Naira cards to not be able to make payments into international enterprises, except for dollar cards.

Now, this didn’t only limit the rate at which international businesses trade in Nigeria, but also churned off customers who probably can’t afford to go through the stress of owning a dollar debit card. Considering the FX rates, some international businesses decided to introduce regional discounts where let’s say if the original price is $500, people from Nigeria might get it at 5—10% reduction. All roads leading to govt policies.

How to Reduce the Depths of Market Volatility

1. Spread Your Wings

Although there are many proven theories out there that support being a ‘master of one,’ however, on the flip side, the full quote of “jack of all trades” said; “…master of none, but better than master of one.”

And truly, it is better to have options than return to ground zero when the other isn’t going as planned. So spreading your investments across many commodities can go a long way in reducing the impact of volatility in a single market setting. Spread your wings and fly deeper and always remember not to keep all your eggs in one basket!

2. Ensure Depth Researches

At the beginning, we mentioned something about how people are getting lazy these days, which is true. Some people even go miles in leaving their business in the hands of AI to run it for them. AI, really? That’s too much confidence you’ve got there!

Hey, don’t get it wrong, AI might be a good tool if well used and not totally relied on to manage your entities. But when it comes to a market environment, it is way more recommended to go traditional by doing the research yourself or still, through a team of well-structured market analyzers.

While it is okay to do research, we recommend you go deeper. More information to you means more information to run your business and not get stuck like others when volatility comes knocking.

3. Consider Long Term

While it is sweet to reap benefits of your labor within a short period of time after venturing, it is also important to put long term into consideration. Many years ago some companies were worth pennies, some investors got tempted and sold away their shares. But today, these companies are flying high—to the sky, but because they’ve allowed short-sightedness to cloud their judgment, they can’t go claim their shares because it doesn’t exist.

Same thing should be considered when investing in commodities because over time, the volatility may smoothen. And that means you’re still in business!

Stop judging future price movements by actions of a single day or a few days, this is why many people lose money trading in the financial market, they see a little wick up they buy, when it starts coming down they sell again.

The Game of patience before buying and after buying is what differentiate those people with many X ROI and those who wants others to always share in their miseries.

4. Embrace Technology

Each day, new technology emerges. The undeniable truth is, technology makes life easier. The cost of acquiring tech these days can be pocket-teary too.

But isn’t it better to have the techs doing their thing for you while you smile to the bank thereafter?

Summary

Although volatility in commodities is undeniable, factors can be set in place to reduce the depth at which it would hurt your enterprise when it comes knocking.

Have you experienced volatility in trading before? What are your experiences so far with commodity irregularities? Let’s talk about it via the comment section below.