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Commodities for Every Portfolio: Part Two
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It should come as no surprise that commodity futures are at the top of my list when it comes to participating in the commodity markets. No other investment vehicle provides investors with an as pure and direct way to participate in this commodity bull market. When you purchase a commodity futures contract, you are directly participating in the commodity marketplace. On any given trading day, you can enter into an agreement with a wheat farmer from Kansas City or a silver producer from Idaho. You can purchase an oil contract alongside a multinational corporation or sell gold contract to a gold jewelry manufacturer in India. This direct interaction with commodities is quite simply the purest way of participating in this commodity boom.
Futures Focus
There are several other reasons why I focused so extensively on the futures markets in Part One. The first reason has to do with the general lack of understanding about the commodity futures markets. I firmly believe that in order to fully understand the dynamics of this commodity boom, you have to understand how the futures markets work. In other words, knowing the history, function, and purpose of the futures market will provide you with better insights on why commodity prices move the way they do.
If you stop and think about it, this makes perfect sense. Commodity prices move up or down based on the activity that occurs in the futures market. At times, this movement might occur because speculators are anticipating higher prices down the line. Other times, commodity prices appreciate due to increased demand from consumers. Whatever the reason, as long as you understand the players involved and what the future markets represent, you can more easily follow the factors that affect this commodity bull market.
The second reason is a bit similar to the first one. I have had too many interactions with people who automatically tune out anything commodity related because they had a preconceived idea about the futures market. Thus, I believe it was important to debunk some of the most popular myths before writing about how investors could actually participate in the commodity markets. My hope is now that you understand that commodities are a viable investment, you can focus more clearly on the different commodity options.
Finally, the commodity futures markets have an effect on most of the other commodity-related investments, and therefore they must be discussed. When you look at commodity stocks, for example, they often move in tandem with their underlying commodity futures contract. On days that oil futures are moving higher, you will find a vast majority of oil-related companies also moving higher. The same can be said about commodity mutual funds and commodity ETFs. Even commodity currencies often fluctuate with rising or falling commodity prices. Consequently, understanding the commodity futures market, regardless of whether you invest in it, allows you to have a better grasp of the other commodity-related investments.
The above is an excerpt from Part Two: Participating In the Commodity Markets. The following chapters make up this section:
Chapter 4: Deciding What is Right for You: Futures, Stocks, Mutual Funds, and Exchange-Traded Funds
Chapter 5: Participating Through Futures
Chapter 6: Particpating Through Stocks
Chapter 7: Participating Through Mutual Funds
Chapter 8: Participating Through Exchange-Traded Funds
To find out more about Commodities For Every Portfolio: How You Can Profit From the Long-Term Commodity Boom, please click here.
Emanuel Balarie
CEO, Jabez Capital Management
Editor, www.commoditynewscenter.com
312-466-5561
Futures and options trading involves substantial risk and is not suitable for everyone.
Excerpted with permission of the publisher John Wiley & Sons, Inc. from Commodities For Every Portfolio: How You Can Profit From The Long-Term Commodity Boom. Copyright (c) 2007 by Emanuel Balarie This book is available at all bookstores, online booksellers and from the Wiley web site at www.wiley.com, or call 1-800-225-5945.
