Best Commodity Investment Strategies and Tips
Commodity investments are potentially the most lucrative investment vehicles an investor can harness.
They can be risky, but a disciplined investment approach can make commodities a source of consistent and significant gains in your investment portfolio.
Perhaps best of all, commodities are rarely tied directly to the wild and unpredictable, costly, and frustrating ups and downs that come with investing in the stock market.
Any beginning commodity investor should focus on three things:
Supply: The first half of the commodity investment equation is supply.
As a commodity investor you’ll be asking yourself and answering many questions. How much are mines producing? How are farmers’ crops looking so far this year? What’s the political situation in the countries which produce the most of a specific commodity?
There are an infinite number of factors which will drive commodity prices. But in the end those factors mainly affect the supply of any commodity and that alone is one of the most dominant factors.
Demand: The other main driver of commodity prices is demand.
Again, as a commodity investor, you’ll be sizing up a number of different situations. You’ll be focusing on global economic growth, international politics, consumer trends, and technological innovations which could spark a new source of demand for specific commodities.
Demand for a commodity is one of the largest inputs for the price of any given commodity. By spotting demand growth, you’ll be able to do extremely well investing in commodities.
Commodities investment Vehicle: Thanks to advancements on Wall Street, investing in commodities is easier than ever for the individual investor.
The traditional commodity investment vehicles are futures contracts and options on those futures. Futures contracts are an agreement to buy or sell a given commodity at a future time at a predetermined price. Options are the right, not the obligation, to buy a specific amount of a given commodity at predetermined price and future date.
Those are the critical investment a beginning commodity must understand completely.
They are the focus of all commodity investors ranging from novice to the most experienced floor brokers and traders who have been investing and trading commodities for decades.
You can learn more about commodity investments here in Contrarian Insights’ Commodity Investment section.
Executive Editor, Contrarian Insights
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