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Commodity prices going up. Time to hedge your business?

Broad-based Commodity Rally: A general increase in commodity prices across various sectors (energy, metals, agriculture) could explain the index reaching a two-year high. This could be driven by factors like:
  • Supply Chain Disruptions: The ongoing war in Ukraine and other global disruptions can limit supply, pushing prices up.
  • Weakening Dollar: A weaker US dollar can make commodities priced in dollars more attractive to international investors.
  • Inflationary Pressures: Inflationary concerns can lead investors to seek assets like commodities as a potential hedge against inflation.
The impact of a high commodity equal-weighted index on SMEs (Small and Medium Enterprises) can be a double-edged sword. Here's a breakdown of the potential effects:
  • Raw Material Costs: Since the index reflects rising prices across various commodities, SMEs that rely on these commodities as raw materials will likely experience higher input costs. This can squeeze their profit margins and potentially force them to raise prices for their own products or services.
  • Energy Costs: If the index includes energy commodities like oil and gas, rising energy prices can significantly impact operational costs for SMEs across various sectors. This can affect everything from transportation and manufacturing to heating and cooling costs.
Tip. We used Energy ETF to hedge our clients from the possibility of commodity rise. Our algorithms gave us Buy signal in the beginning of the year with potential goal around 120.
Important Note: This analysis is based on readily available technical indicators and should not be considered financial advice. Always conduct your own research before making any investment decisions.
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