Manuel Chinchilla Da Silva Asks: Why Invest in Commodities?

Many experienced investors use commodities as collateral when inventories are low. Although commodities involve risks, by investing in commodities you actually get a tangible asset. When talking about commodities, they include precious metals, currencies, crops, oil, gold and gas. Generally, when the value of the shares falls, the prices of the commodities increase. Here you can find out the reasons why you should consider investing in commodities to diversify your portfolio.

Professional investors use commodities as a cushion against inflation. When prices rise, the prices of raw materials also rise. However, the value of the shares generally falls when inflation increases. Therefore, experienced investors exchange their money for raw materials to compensate for any loss that a decrease in the value of the shares may generate. Here we offer some information on how to invest in commodities.

Purchase of commodities

Buying commodities is not as simple as buying gold and depositing it in a safe in the bank. In most cases, investors buy a commodity futures contract. The way they operate is by buying a contract to sell a specific amount of shares at a future date.

When the value of a raw material increases, the value of the contract also increases. The objective is to buy the contracts of a specific raw material, such as gold or oil, for a low price and sell the contract when the price increases at a future date. However, the contract price can fall as easily as it can go up. Many brokerage agencies require a special account to negotiate futures contracts.

Although you can buy commodities directly, you are responsible for managing your investment. For example, if you invest in oil, you will be subject to the cost of shipping and storing each barrel of oil. In addition, you are likely to have to pay transaction fees, which can cost two percent or more for each investment.

You can also buy shares of companies dedicated to the commodities industry. For example, if you want to invest in energy, you can buy shares of oil and natural gas exploration and supply companies. If you want to invest in gold, you can buy shares of companies dedicated to mining this precious metal.

Although commodities can be very profitable, they also pose many risks. The prices of raw materials are highly volatile, since they are sensitive to factors unrelated to economic conditions. Climate and natural disasters affect raw materials much more than the value of the actions themselves.