Investments  

Book review: Guide to Commodities

The world of commodities is complex and requires an important investment from anyone willing to familiarise himself with the ins and outs of the asset class. In particular, for one aspiring to start investing in the asset class, guiding research is mandatory. The new kid on the block is Caroline Bain’s Guide to Commodities.

The book’s aim is to focus on the main segments of raw materials and the individual commodities within each. It specifically looks at individual commodities following a consistent pattern. Characteristics of each individual commodity, including extraction and production processes, are followed by main end uses, leading consumers, international trade players, and major producers, as well as where they are traded, price and stock levels and an outlook. It forms the core of the book. Production processes are mostly well explained. Together with a thorough description of long-term trends in main consumers, international traders and producers of the commodity, in this consists the best part of the book, in my view. The long-term trends are dealt with in an in-depth way with much statistical backing. In doing so, we get a comprehensive and helpful guide for selected individual commodities. In this sense it may serve as a reference guide for historical trends in individual commodities. A drawback of this approach is the resulting dictionary look and feel, not helped by the fact that commodities are dealt with in alphabetic order within the broader categories.

Where the book could have been more

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developed – although this may not have been the author’s intention – is in the economics and investment part of commodities. Certain economic themes are dealt with, leaving many other factors like the dominance of emerging countries, monetary policy drivers, inventory cycles, cross commodity interactions or inter-asset class dynamics aside. Similarly, in the section on commodities as financial assets, it could have been useful to explain the different composition of the major commodity indexes. Also, factors like the importance of (negative) roll yields when investing in commodities, the role of non-commercial actors, or the rise (and fall, as recently the case for gold) of physically backed ETFs could have been of added value. The theme of hedge or non-hedge against inflation (shocks) could equally have been more elaborated.

In line with a lighter investment part of the book, the individual commodity price trend and outlook is also somewhat less developed. In its outlook it serves more as a guide for medium-term trends. The strength of this book lies precisely in this explanation of historical and medium-term trends of individual commodities

Published by Economist Books