I've heard bad news about oil, gold and China recently, so is it time to shun or invest in commodities?

Published: 04:50 EST, 6 October 2015 | Updated: 07:39 EST, 7 October 2015

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I have read that commodity prices have slumped even further recently, while oil and gold are also suffering.

I wonder whether this is a buying opportunity, or is it too early to be trying to invest in a commodity rebound? What is the outlook for commodities?

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Eleanor Lawrie, of This is Money, replies: Commodities have had a difficult time lately following a rapid fall in demand from China, their biggest market - and fears over its future growth.

The country has been experiencing slowing economic growth since 2007, reducing its need for resources.

And to make matters worse, this lack of demand came shortly after lots of investment had been put into the efficient production of commodities, creating an oversupply.

Oil is the commodity which finds its price most often making the headlines. The oil price has fallen from about $110 in late spring 2014 to under $49 today.

But it is not just oil that has suffered, commodities as a whole have seen a rout.

As a result, a lot of commodity funds have lost money recently. In one year to the end of August, the £498.1million JPMorgan Natural Resources fund had fallen by 45 per cent,

The BlackRock Gold and General fund lost 36.7 per cent in the year to August 28, while its £511.3million World Mining Trust saw its share price fall by 51.6 per cent in the year to August 31.

That highlights how even those who have spread their investments through a fund have been hit badly.

Historically, investors have put some of their money into commodities as a way to diversify their portfolio, and give them some protection if other investments do badly.

WHAT IS BULLION?

Bullion is the term used for metals such as gold or silver in bulk form. Its value is worked out based on the purity and mass of either the coin or bar and they are bought or sold through brokers, online platforms or in auctions.

Gold, in particular, has long been regarded as a 'safe haven' for investors because it holds its value in the face of rising inflation. Yet, the gold price has slumped since hitting its record high of $1,921 in September 2011 - today it stands at $1,138.

Commodities are primary goods that are all around us, such as gold, oil or wheat.

As an asset class they are regarded by the market as one entity for their benchmark price, regardless of who produced them, for example the price of cocoa would not be higher if it came from one supplier rather than another.

The asset class varies from soft commodities that are grown, such as coffee, sugar or wheat, to hard commodities that are mined or extracted from the ground, like oil or gold.

They can be accessed in a number of ways, including investing in commodities stocks, or via a fund which could be totally dedicated to commodities, or just have some exposure to them.

Stephen Jones, chief investment officer of investment house Kames Capital, sets out the challenges facing the asset class at the moment in the video below, and why he thinks prices will continue to slide.

The outlook for oil

A supply and demand imbalance has been bad news for the oil price recently, with a barrel of Brent crude oil slumping by more than 50 per cent in the past year to less than $50 a barrel.

Oil producers have done what they can to maintain profits, by cutting spending and decommissioning oil fields, but so far it does not seem to have stemmed the price decline.

In the next six months the supply and demand dynamics will get worse according to the Kames CIO, with even $50 a barrel hard to sustain as Iran re-enters the oil market and the US ramps up its production of shale oil and gas.

Below Stephen Jones reveals his thoughts on oil.

The outlook for gold

Gold is often described as the ultimate 'safe haven' asset because it holds its value when other asset classes fall.

For example, bonds do badly in a rising interest rate environment because inflation causes them to lose value, and equities can fall when there is bad economic news, because they are deemed to be risky.

Gold can provide protection in both of these scenarios. It is a long-term store of value with a track record going back thousands of years.

But the gold price hit five-year lows in 2015 as inflation has remained almost non-existent in many western countries.

The economic picture has also improved, which is good news for assets that pay an income and bad news for non-yielding assets like gold.

Stephen Jones outlines his thoughts on gold below.

Is it too early to invest in commodities?

So should you invest in commodities at the moment?

If you can call the bottom of a market, than this could be a money-making opportunity - prices are very cheap and could rise substantially from here.

However, making these kinds of predictions is notoriously difficult, and some of the factors affecting commodities are long-term and very difficult to quantify, such as the slowdown in China.

Brave investors may be tempted to take the plunge, but they should bear in mind the golden rule of diversification and avoid gambling too much of their wealth on just one thing. If the market moves against them, they could suffer badly.

The Kames CIO says he is currently seeing better opportunities away from commodities, and below he discusses the reasons why his investment house is still bearish on the asset class.