Ever since financial crisis, prices of basic crops, fuels and industrial metals have moved in sync with one another. They have also somewhat correlated with stock markets for a long period of time, which is should not be. Commodities prices should be driven by supply and demand.
In today’s Wall Street Journal, Commodities’ Paths Diverge, Michael Lewis, global head of commodities research for Deutsche Bank said, “The physical fundamentals have come back for commodities.” It is interesting to see from the chart below that “Commodities are starting to behave like commodities again”
With lower correlation with other markets, investors can start to diversify their portfolios without compromising the returns.