CFA text Volume 5 SS 13 R 37 Paragraph under the Special Risk Characteristics says:“In periods of financial and economic distress, commodity prices tend to rise, potentially providing valuable diversification services in such times.” On the same page - under the first bullet opint of “Business cycle-related supply and demand”- last sentence says “Finally, commodity prices tend to decline during times of a weak economy” so which one is it?
Hi, mumukada, I suggest you to send inquiry to CFAI to clarify this. It’s their responsiblity to feedback to you.
this is only a guess and it may be just me trying to justify the seemingly contradictory statements. so please take it with a grain of salt. i think in the first paragraph, they are talking about during times of financial shock or extreme volatility in the mkt… (ie. gold now.) and maybe in the second paragraph they are talking about your run of the mill cyclical slowdown? (ie oil when industrial activity slows down due to a slowdown in the economy) the word “distress” in the first paragraph is making me think this is what it is… i don’t have that book with me so forgive me if i’m way off base here… my posts always come with disclaimers.
I think cfasf1 is right on here. When markets are going to hell, everybody wants to hold onto something tangible. When markets are just chugging along normally (remember those days?), commodities are subject to the business cycle.
agree w/ cfasf1 & mwvt9.
hmmm…alright…that makes more sense than the vague text in the CFAI books…so I’ll take it