Investing in Commodities: What You Should Know?

Commodities can range anywhere between oil, food, energy and metals. Their significance in everyday life makes these commodities highly investible but it is important to consider all the options first. In a financial world full of the more traditional stocks and bonds, an increasing number of investors are turning towards commodity investment. The appeal of this type of investment is due to its newer simplistic approach, where it once was time consuming and expensive to invest in commodities. However the variety of routes now available is making it more attractive to investors.

Going for Gold!

Commodity price gains are on the up and in particular items such aluminium, copper and nickel and other metals are increasing in value. Sugar is also predicted to be a highly investible item due to the increased production of it from Brazil and India. However it is gold and silver that is set to really outperform and bring the highest return in 2013. The price of gold has increased from $252 per troy ounce in 1999 to a current $1,600. Having said that, it would be particularly wise to invest in silver as it has many industrial uses and is cheaper than gold.

Investing in Commodities

Being smart with your money!

Agricultural commodities, otherwise known as ‘soft’ commodities including coffee, grain, wheat, corn and livestock are also popular commodities to invest in. There are a few contributing reasons for their popularity, including the increasing demand for food stuffs due to the expanding population and the increasing consumption of meat. Soft commodity investment is less accessible to smaller investors as there are substantial risks involved in this type of investment. The risks are created by the fact that soft commodities are not located all in one place but are instead spread globally. They are also controlled by the governments and the companies of the countries they are grown in. When investing in such commodities, it is important to invest in reputable companies with experience, in order to lessen such risks.

As previously mentioned, there are different routes into commodity investment. One option is to invest in shares with respectable firms such as Associated British Foods. Another route is to choose ‘exchange traded funds’ that track a number of agricultural goods. Similar to tracker funds, they are passive investments that mirror the performance of a particular market. These funds in particular have made investing more accessible to private investors. The ‘Futures Contract’ is another popular way to invest. This is an agreement to buy or sell a specific quantity of commodity in the future, at a specific price.

What’s your type!

The type of commodity investment will depend on the experience of the trader. Although popular, it is important to consider the risks involved with each type of commodity investment and each route into it. Money should always be invested wisely, whether it is earned or is a windfall gain such as a tax refund. If this is properly thought out first, there should be no reason why commodity investment will lose its value anytime soon.

Author Bio: The above article is composed by Sara who is a specialized finance content writer. She believes that it is very important to study about tax refund policies before filing your tax. She recommends to take help from professionals only in this regard.

Scroll to Top