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Commodities! a Friend in Inflation Times!

Commodities

Commodities are basic resources and agricultural products such as iron ore, crude oil, coal, ethanol, salt, sugar, coffee beans, soybeans, aluminum, rice, wheat, gold and silver. Generally a commodity is something for which there is demand, but which is supplied without qualitative differentiation across a market. Here you will find tips about:

Commodities! a Friend in Inflation Times

Definition of Commodities

Commodities are basic resources and agricultural products such as iron ore, crude oil, coal, ethanol, salt, sugar, coffee beans, soybeans, aluminum, rice, wheat, gold and silver. Generally a commodity is something for which there is demand, but which is supplied without qualitative differentiation across a market. It is a product that is the same no matter who produces it, such as petroleum, milk or wheat. In other words, copper is copper. Rice is rice. The price of copper is universal, and fluctuates daily based on global supply and demand.
One of the characteristics of a commodity good is that its price is determined as a function of its market as a whole. Well-established physical commodities have actively traded spot and derivative markets.
Basically anything movable (a good) that is bought and sold; something useful or valuable; Raw materials, agricultural products and other primary products as objects of large scale trading in specialized exchanges is considered a commodities.

Today commodities includes not only agricultural goods, metals and petroleum, but also products such as financial instruments, foreign currencies and stock indexes that trade on a commodity exchange.

Commodities and Inflation

At the center of the commodities there are products that offer a safe haven or a hedge against inflation. Because commodities prices usually rise when inflation is accelerating, they offer protection from the effects of inflation. Few assets benefit from rising inflation, particularly unexpected inflation, but commodities usually do. As demand for goods and services increases, the price of goods and services usually rises too, as does the price of the commodities used to produce those goods and services. Futures markets are then used as continuous auction markets and as clearing houses for the latest information on supply and demand.

How to Trade Commodities

Trading futures is the purest way to invest in commodities. To trade commodities, an individual trading account can be opened either directly with a futures commission merchant or indirectly through an introducing broker. Another way to trade commodities is through a managed account, where you give someone written power of attorney to make and execute decisions about what and when to trade. He or she will have discretionary authority to buy or sell for your account or will contact you for approval to make trades, or you can hire a commodity trading advisor for a fee. And lastly, ever increasingly popular methods of diversified investing in commodities include commodity pools (limited partnerships) or commodity-related mutual funds.

How to Invest in Commodities

For most investors the most suitable way to invest in commodities is through a mutual fund. They can be purchased through a "natural-resources fund", which buys companies associated with the mining or production of commodities. Or, commodities can be purchased through a "raw-commodity fund", which actually invests in commodity-linked derivative instruments backed by fixed-income investments.

Diversify your Commodities

In order to get the true diversification value of commodities and the negative correlation to stock returns, you’ll need to seek out funds with direct commodity investments since buying a natural-resources fund will typically just add more stock holdings to your portfolio. Several exchange-traded funds based on commodity indexes are being planned for the future.

Commodities to Hoard

If you wonder what commodities will be best to stock up to your portfolio, you will have to do your own research, because commodities are based on supply and demand, therefore supply might be high one day and low another. But in general, these are some commodities you might consider buying after doing your own research. Note: by the time you read this article, probably one of these commodities might not be a good idea to invest on, so do your own research before considering any of these commodities, the best way to invest in commodities, is to look at the fundamental driver, which is the shortage of supply.
Food: The sub-sector is still further from its historic highs than metals or energy and the demand-supply picture is compelling. Rising populations, mounting wealth in emerging economies fuelling protein demand and the trend towards biofuels are major drivers of demand, while urbanisation, limited room for acreage expansion and meagre stockpiles – US corn inventories are at a 35-year low – have meant supply is falling behind. The outlook is especially positive for grains and cotton,
Potash: A key ingredient in fertilizers, it is used on crops from bananas to barley, making it a staple for home gardeners and agribusiness alike. Shortages and a growing demand for grain forced its price up dramatically between 2007 and 2008.
Silver: Used for batteries, bearings, coins, electronics, jewelry, silverware, photography, solar energy, water purification.
Nickel: Used for electroplating, stainless steel and other steel alloys, hybrid car batteries.
Cobalt: Used for cellphones, laptops, hybrid car batteries, paint-drying agents, super alloys for jet engines.

Commodity ETFs or ETCs (Exchange Traded Commodities)

Commodity ETFs invest in commodities, such as precious metals and futures. Among the first commodity ETFs were gold exchange-traded funds, which have been offered in a number of countries. Commodity ETFs generally are index funds, but track non-securities indexes. Because they do not invest in securities, commodity ETFs are not regulated as investment companies under the Investment Company Act of 1940 in the United States, although their public offering is subject to SEC review and they need an SEC no-action letter under the Securities Exchange Act of 1934. They may, however, be subject to regulation by the Commodity Futures Trading Commission.
Exchange Traded Commodities (ETCs) are investment vehicles (asset backed bonds) that track the performance of an underlying commodity index including total return indices based on a single commodity. Similar to Exchange Traded Funds (ETFs) and traded and settled exactly like normal shares on their own dedicated segment, ETCs have market maker support with guaranteed liquidity, enabling investors to gain exposure to commodities, on-Exchange, during market hours.
ETCs trade just like shares, are simple and efficient and provide exposure to an ever-increasing range of commodities and commodity indices, including energy, metals, softs and agriculture.

List of Traded Commodities

Here is a list of some traded commodities, from Energy, Metals, Livestock, Meat and more ... The prices shown are dated from April 2 to April 6, prices may change dramatically, so this list is just an example of some commodities that are traded, and offered for educational purposes only.

Energy

Price

Last Update †

Light Crude (NYM)
May 09 ($US per bbl.)

52.51

4/3 2:28pm

Heating Oil (NYM)
May 09 ($US per gal.)

1.45

4/3 5:12pm

Natural Gas (NYM)
May 09 ($US per mmbtu.)

3.80

4/3 5:13pm

Unleaded Gas (NYM)
May 09 ($US per gal.)

1.49

4/3 11:31am

 

Metals

Price

Last Update †

Gold (CMX)
June 09 ($US per Troy oz.)

897.30

4/3 1:30pm

Silver (CMX)
May 09 ($US per Troy oz.)

12.74

4/3 1:24pm

Platinum (NYM)
July 09 ($US per Troy oz.)

1,166.30

4/2 1:03pm

Copper (CMX)
May 09 ($US per lb.)

2.00

4/3 12:50pm

 

Livestock & Meat

Price

Last Update †

Lean Hogs (CME)
June 09 (cents per lb.)

73.65

4/3 2:06pm

Pork Bellies (CME)
May 09 (cents per lb.)

88.85

4/3 1:59pm

Live Cattle (CME)
June 09 (cents per lb.)

84.18

4/3 2:11pm

Feeder Cattle (CME)
May 09 (cents per lb.)

96.70

4/3 2:06pm

 

Other Commodities

Price

Last Update †

Corn (CBT)
May 09 (cents per bu.)

404.50

4/3 2:29pm

Soybeans (CBT)
May 09 (cents per bu.)

997.00

4/3 2:28pm


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