Commodity-linked securities may be appropriate for investors:
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Commodity-linked securities are not derivatives, though their performance is linked to some commodity price. Commodity-linked securities are positively correlated with inflation. Commodity-linked securities are an appropriate investment for those who are prohibited from directly owning real assets such as commodities, but wish to participate in the market.
All of the following are examples of commodity-linked equities EXCEPT:
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The stocks of a gold mining company and an oil and gas exploration company are highly correlated with commodities prices, because their values are closely linked to the price of the commodities they produce. A supermarket chain will be more diversified, and many other factors will contribute to the value of the company.
In periods of rising inflation, commodities can act as a hedge to a portfolio of stocks and bonds because the:
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In a period of rising inflation, the prices of commodities tend to go up, while the prices of stocks and bonds often tend to go down. Thus, the commodities position will act as an inflation hedge for the stock and bond portfolio.
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