5 commandments for a safe investment in commodity exchanges

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New York Mercantile Exchange

Investors devote a portion of their surpluses to building large portfolios in which they combine a portfolio of best-performing stocks and bonds, based on key global market indices, allowing them to realize good yields. They then use innovative types of financial instruments to hedge market loss losses as a form of smart hedge. A group of investors speculates on commodities markets to increase their gains by buying precious metals, grains and petroleum products on futures and taking on higher risk. This is where the bullshit is concerned, since this activity prevails in particular 5 illusions that must be dissipated before investing or persevering in the investment. If you are happy with our pilgrimage, consider these tips before moving on to the next step safely.

Spring Markets
Last April, Citigroup released a 158-page report badyzing in detail the performance of major commodity markets and predicting good performance in the near future. The report, "Spring of Commodity Markets," describes better-than-expected prospects for investment security in all kinds of commodities, including energy products, such as US natural gas. Does this mean that the time has come for your portfolio to diversify into investment funds in commodities?
Before answering the question, we must examine the existence of a new range of products available on the market and increase its components more and more to become more attractive to an ambitious investor. In spite of this, do not rush to follow the proponents of property speculation, which they consider the best investment tool and putting dozens of arguments in support of their opinion, five elements must be protected, even dispelled, like mere illusions and myths. Let's look at the existing image first.

The bright picture
Gold prices reached their best levels and those of maize and other agricultural products reached their highest level in three years, while floods delayed the planting season in April. other parts of the world, with the result that the expected harvest of late harvests would not be as abundant as expected. Prices of some of the preferred meat species in Europe and Asia have also increased due to seasonal livestock disease in China. These are undoubtedly excellent results for the investor, but we must also look on the other side of the hill. We hear these misconceptions prevalent on the market and force us to clarify and deny if necessary.

First: commodity markets are equivalent to stock exchanges!
Speculators in commodity markets consider stocks and bonds as investment badets and should be included in your portfolio as a long-term investment. This is not quite true with countless university studies. Commodity speculation has worked well at a time when normal money markets are upset, which is true. Innovative indicators of a range of commodities have made investments more flexible in terms of monetization and profitability over time. However, these investments do not generate annual returns such as equities and generate no income in the form of interest rates that you can calculate. Unlike stock and bond markets, speculators in commodities markets need to closely monitor supply and demand imbalances in several markets simultaneously (corn, wheat, coffee, copper, etc.). It is not so easy here. One can not expect a common performance of fundamentally different products for different reasons: price volatility increases and speculators' heartbeats deteriorate.

Second: the commodity, protection against inflation!
Speculators in commodity markets consider it to be a hedging tool to counter any rise in the inflation rate. Goods can sometimes be a form of temporary protection, but they are not a reliable shield. In other words, they achieve high profitability in the event of sudden and unexpected inflation. Otherwise, it is disastrous. A Vanguard Group report indicates that conventional titles are a better way to fight inflation than commodity markets. The report released in May that the Treasury bonds were used to hedge the stock and bond speculation characterized by an increase in the value of the automatic increase in expected or sudden inflation rate to reach the Purpose desired by investors. Experts believe that gold itself can not be used as a means of countering inflation, unlike securities covered by treasury bills.

Third: the commodity funds bind you to the benefits of the raw material itself!
This badertion is confirmed in a few cases, notably by gold speculation via the main investment funds involved in this activity. But they are not a stable base on which to count for all products. For example, no one can keep huge grain warehouses to take advantage of high prices at one time and rush them. The investment is made here through so-called futures contracts, which guarantee the buyer's supply at a fixed price agreed from one month in advance and can go up to one year.
It should be noted here that most of these funds operate in complex ways, even though they mainly trade commodities. This is clearly the case for oil and natural gas because the funds buy the shares of large US companies to take advantage of their good performance. Fund managers also buy Treasury bills to protect their investors from price fluctuations. It can be said here that much of the return on investment in commodity futures is mainly due to investments in treasury bills.

Fourth: Most funds achieve similar returns!
There are indicators of gold and other energies, as well as indicators of limited and extensive numbers. In other words, the price of commodities is varied and varied. The badessment of course varies from one index to the other. For example, if we look at the Goldman Sachs Commodity Index, we will see the dominance of oil and gas and their products, as more than two-thirds of registered goods depend on oil performance. On the other hand, the Bloomberg Commodity Index includes 22 different products spread across seven sectors, and no sector can acquire more than one-third at any time. The Deutsche Bank Commodity Index focuses on liquidity and comprises six components that together make up the world's most active commodities futures. It can not be said that these three indicators are identical to performance and performance, even if the products offered are similar. This is due to the nature of the contracts: some are short-term (three months) and others long-term (12 months). Prices vary completely between these contracts and these, so the returns are clearly different. The same prices vary between products. Therefore, the returns you want to achieve depend on the nature of your investment fund and the index listed.

Fifth: the products do not accept the speculative nature!
In fact, some categories of investment badets are more flexible in speculation, unless one considers KFH's electronic money as a category in itself. It can be said that goods are characterized by the inability to reliably predict price changes, as they may be modified in response to current events, or in response to supply and demand trends, or to operate simultaneously. Some experts believe that it should be considered this activity as a flexible activity: it is a tradable commodity, a kind of short-term investment and may even sometimes be considered as a kind of long – term badet acquisition. In other words, commodity exchanges provide the investor with a variety of instruments, even if they do not allow for significant growth in long-term returns. In conclusion, speculative commodity markets require a high level of hedging from the investor, while avoiding them as long-term growth.

By: Susan Maggie