Commodity investment is something that many investors think is only of interest to the professionals- such as investment banks, commodity traders or multinational companies. However, in fact, with the penetration of the internet into every sector of our lives, even commodity investments are becoming available to investors of all means. Investing in a commodity involves the same decisions as putting your money into any other asset class, like stocks or bonds.
That is because the commodity market has long been security market; rather than actually buying a physical amount of a commodity, like a barrel of oil, purchasers are only paying for a nominal quantity. The trading of these instruments (or futures) takes place on commodity futures exchanges, where fixed units (or lots) of the commodity can be bought or sold. Now, futures trading is something any investor with a computer and internet access can readily take up.
As with other assets, commodity prices fluctuate according to supply and demand; it is these price moves of which the commodity investor seeks to take advantage. When a position is closed out, by placing a sell after the initial buy, a profit is realized from the price rise (or loss from a price fall). So why would a commodity investment make sense? After all commodity prices are notoriously variable, and can be significantly more volatile than stock indexes.
The reason becomes obvious when you take a step back, and look at long-term performance. Commodities such as oil, gas or metals are derived from limited resources. As those resources are depleted, the long-term direction of commodity price can only be up. Similarly soft commodities, such as wheat, pork bellies or cotton, are also subject to increasing demand, as population continues to expand; they too are seeing long-term price gains.
Therefore, if you are looking towards a longer investment, one that is more loosely tied to economic activity than stocks, then
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