Why supply shocks are a trap for commodity investors
Commodity markets look deceptively simple. The prices of raw materials, unlike those of bonds or stocks, seem to move according to how much raw material there is—forget obscure data somewhere on a balance-sheet. When the supply of a commodity shrinks, prices go up. When supply expands, they go down. Inventories are buffers against shocks: when they are low, prices move more, and vice versa.
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