Commodities have had a rough time recently. The strong USD as well as increasing production have pushed the value of several commodities down. However, the USD has been edging down recently and commodities, including gold and silver have started moving upward. However, there is a bit of a debate in the world of investing with regard to where commodities are headed next. Today, we'll take a look at both sides of the debate, discuss what I think will happen next and talk about how binary options traders can take advantage of the trends.

What Causes Commodities To Move

Before we get into bearish and bullish opinions, it's important to understand what causes movement in the commodities market. The overwhelming factor is supply and demand. When supplies are high and demand is low, we tend to see decreases in the value of commodities. Adversely, when demand is high and supplies are low, we tend to see gains in the values of commodities. There are a couple of key factors to think about with regard to supply and demand…

  • The Value Of The USD – First and foremost, most commodities are priced using the USD. Therefore, when the value of the dollar climbs, the cost of currencies in other economic regions climbs. This leads to dwindling demand and falling prices. Adversely, when the value of the USD is low, commodities become cheaper in other nations, pushing demand higher and causing an increase in prices.

  • Market Conditions – Market conditions also play a crucial role in the values of some commodities. That's because commodities like gold, silver, and wheat are often considered safe haven investments. Therefore, under poor market conditions, investors tend to move to commodities, leading to increased demand and increasing prices. Adversely, when market conditions are positive, investors tend to sell commodities, leading to reduced prices as demand dwindles.

The Bearish View On Commodities

The bearish view on commodities is definitely understandable. The bears argue that commodity supplies are climbing. In the case of some commodities this is very true. For example, oil supplies are climbing, demand is falling, and the value of oil is likely to continue falling. However, in the case of other commodities this isn't exactly the case. For example, look into silver. No matter how you slice it, the demand for silver is climbing and the supply of the precious metal is falling. The same goes for gold and several other commodities.

The Bullish View On Commodities

The bullish view on commodities generally revolves around the state of the US economy. As the US economy continues to struggle, the value of the USD is falling. This decline in the USD reduces the price of commodities in some nations, leading to increased demand and increased prices. As mentioned above, it's also important to remember that when it comes to some commodities, supply is dwindling. This also leads to increased prices.

My View On Commodities

I have a bit of a mixed view of commodities. In the case of oil, I'm expecting the value to continue sliding. With increased production as well as economic conditions causing a slower demand, it only makes sense that the commodity's value is going to fall. Adversely, when it comes to precious metals, wheat and other commodities, my view is a bit more bullish. The reality is that many of these commodities are realizing a slide in supply and a drastic gain in demand. This, over time, will lead to increased prices. Also, with the value of the USD falling, commodities are becoming more accessible in other nations, leading to higher demand which will cause price increases.

How Binary Options Traders Can Take Advantage Of The Trends

In the case of oil, the price is likely to continue falling. Therefore, binary options traders should be looking for put option opportunities to take advantage of the trends. On the other hand, when trading gold and silver, watch the value of the USD. As the USD declines, we're going to see more gains in commodities like gold and silver. So, in the case of gold and silver, binary options traders should be looking for call option opportunities. Make sure to check our latest financial news.

What Do You Think?

Where do you think commodities are headed? Let us know in the comments below.

[Image Courtesy of Benzinga]