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Long Term Commodity Investing
Long term commodity investing can be used as a hedge against inflation, a means of balancing an investment portfolio against the slide of the dollar. The market sets the price of commodity futures based on expectation of what the spot price will be the day of contract expiration. For example, oil futures for July 2010 delivery are $76.31 a barrel for light sweet crude. December 2018 light sweet crude futures are $94.98. Despite oil selling for $150 a barrel just a year or so ago the market only expects to see oil to go up by less than 25% in eight and a half years! If you assume that the market expects to see the dollar languish a bit then the commodity market does not expect to see the price of oil go up. An excellent means of learning long term commodity investing as well as short term trading of commodities is with Commodity and Futures training.
With the use of fundamental and technical analysis traders can follow oil prices, futures prices, the fortunes of oil companies, and the rate of exchange of the dollar. Using such technical analysis tools as Candlestick pattern formations and engaging in Candlestick trading tactics it is possible to profit from trading in the short term. It is also possible to profit from long term commodity investing. In commodity investing over a longer time frame the trader may be more interested in hedging against inflation and the fall of the dollar or in betting that a sustained economic recovery will emerge and drive up the price oil futures, natural gas futures, copper futures and futures in other raw materials.
When considering long term commodity investing the trader needs to learn about which commodities are useful for long term investing. Here we are not talking about buying the commodity itself but in investing in commodity futures. One of the practical reasons for not trading commodities is lack of information. Commodity markets are largely to province of producers and buyers of commodities. Mining companies, for example, will hedge their risk by selling futures contracts. By selling contracts at slightly less than next year’s expected spot price the company will lock in part of their necessary cash flow at a reasonable price. The buyer will likewise lock in a manageable buying price. Commodities traders can profit from these actions. Oil producers, using the preceding example, are interested in having some degree of stability to the oil market. So long as they can lock in a profit on part of their production they will be pleased. If, for example, the price of oil goes up substantially these companies will still profit to a degree on the futures they have sold and more so on then current production. Long term commodity investing in oil futures, for example, could be very lucrative if the recession mends itself and the price of oil goes up. The commodity trader will have bought oil futures for delivery in 2018 at today’s low price.