Resource markets are known for their cyclical trends, going through big ‘booms and busts’ a fact that makes people shy away from them. However, if invested at in the right way and at the right time, people can reap big and diversify their assets. There are some things to keep in mind according to Stansberry Research before thinking about the resource sector.
The sector works like free markets where each time supply and demand get out of hands the markets respond to create an equilibrium (Bloomberg). That is, if supply is scarce in relation to demand, prices will rise which will attract new capital for those in search of profit leading to more production increasing the supply as prices fall to reach an equilibrium. In most markets, producers make these changes constantly, but in the resource sector, it takes some time.
Stansberry Research found out that this is because the sector is time-and-capital-intensive and starting a venture such as drilling a well, a mine or a farming operation takes a lot of capital and time.
Producers do not stop producing when prices fall based on their big investments. This increases the supply and demand imbalances that take longer leading to high price swings on both extremes not seen in other markets. Buying a commodity following a considerable bust and when prices are low is one of the best ways to make a fortune in the future.
Stansberry Research recommends coffee as it is currently at low prices. They quote two times in the past when coffee rose by 45% in 10 months in 2015 when it had low prices, and in 2014 when coffee prices rose 92% in just 11 months. They believe a similar gain can be achieved within the next year in the coffee sector. They think marijuana is the next big trading opportunity pending legal battles.
Stansberry Research is a Baltimore, Maryland-based investment research company offering its subscribers financial information and software. It provides markets briefings on investments opportunities in the global market, commodity markets, currency, and updates on world stock markets. Its weekly publications focus on financial and economic strategies and opinion on individual markets, gold, oil and the dollar markets.