Commodities For Dummies

Commodities Articles

Invest in Commodities through Physical Silver

One of the unique characteristics of silver among other commodities is that you can invest in it by actually buying the stuff, as you can buy gold coins and bars for investment purposes. Most dealers that sell gold generally offer silver coins and bars as well.

• 100-ounce silver bar: If you’re interested in something substantial, you can buy a 100-ounce silver bar. Before buying it, check the bar to make sure that it’s pure silver (you want 99 percent purity or above).

• Silver maple coins: These coins, which are a product of the Royal Canadian Mint, are the standard for silver coins around the world. Each coin represents 1 ounce of silver and has a purity of 99.99 percent, making it the most pure silver coin on the market.

The term sterling silver refers to a specific silver alloy that contains 92.5 percent silver and 7.5 percent copper (other base metals are occasionally used as well). Pure silver is sometimes alloyed with another metal, such as copper, to make it stronger and more durable.

Commodities Articles

What Makes Gold a Valuable Commodity?

Why is gold such an important commodity compared to other metals? The traits of ductility, malleability, quasi-indestructibility, and rarity can help you understand where gold derives its value:

• Ductility: Gold is a very ductile metal. In metallurgy, ductility measures how much a metal can be drawn out into a wire. For example, 1 ounce of gold can be converted into more than 50 miles of gold wire! This gold wire can then be applied in electronics and used as an electric conductor.
• Malleability: Pure gold (24 karat) is a very malleable metal and is prized by craftsmen around the world who shape it into jewelry and other objects of beauty. One ounce of gold can be transformed into more than 96 square feet of gold sheet!
• Quasi-indestructibility: Gold has high resistance levels and doesn’t easily corrode. Corrosive agents such as oxygen and heat have almost no effect on gold, which can retain its luster over long periods of time (think thousands of years). The only chemical that can affect gold is cyanide, which dissolves gold.
• Rarity: Gold is one of the rarest natural resources on earth. Most people don’t realize this, but only about 150,000 tons of gold have ever been produced since humans first began mining gold more than 6,000 years ago. To give you an idea of how little that is, all the gold in the world wouldn’t even fill up four Olympic-size swimming pools!

  And because most gold is recycled and never destroyed, a majority of gold is still in use today. About 15 percent of gold is recycled every year.

Commodities Articles

How to Own a Piece of a Commodity Exchange

One of the biggest trends in the global investment game in the beginning of the 21st century is the increasing popularity of commodities in investor portfolios. Driven by high commodity prices, many investors are looking for ways to profit in this sector.

Commodity exchanges are becoming popular vehicles through which investors access the commodity markets. Because of their unique position, commodity exchanges stand to gain tremendously from this interest from the investing public. Interested in cashing in on this trend without trading a single contract on a single commodity exchange?

Sometimes, with all the commotion associated with the trading floors on commodity exchanges, it’s easy to forget that an exchange is a business like any other business. Exchanges have employees, board members, revenues, earnings, expenses, and so on.

Exchanges aren’t charitable organizations; a commodity exchange is a for-profit enterprise. Just as a car manufacturer sells cars to customers, commodity exchanges sell commodity contracts to customers. That’s their bread and butter — their business is to sell financial instruments to the investing public. As with any company, exchanges charge a fee for this service.

For most of their existence, exchanges have been privately held companies whose business side has remained under close wraps. However, because of the increasing popularity of commodities and the rise of the electronic trading platform, many commodity exchanges are now going public. That is, they’re becoming public companies with shareholders and outside investors. Most of the commodity exchanges are now traded on stock exchanges just like Microsoft, Ford, or Wal-Mart.

In 2003, the Chicago Mercantile Exchange (the nation’s largest commodity exchange in terms of volume) went public. Its shares are now traded on the New York Stock Exchange under the ticker symbol CME. CME went public at a price of $43 a share.

After reaching a high of $700 a share in 2007 and a low of $200 during the Global Financial Crisis, the stock price has stabilized in the $300 range since 2008. Encouraged by these results, a number of other commodity exchanges went public soon afterward, and more are following suit. You can cash in on this trend by becoming a shareholder in one of these exchanges.

Before you purchase equity (stock) in one of the commodity exchanges, make sure that you perform a thorough analysis of the stock and the company fundamentals. A stock never goes up in a straight arrow — it always retreats before making new highs. Sometimes it doesn’t make new highs at all.

You should follow a stock on paper — that is, follow its movements without actually owning the stock — for a period of at least two weeks. That way, you can get a feel for how the stock moves with the rest of the market. You can hopefully pinpoint the right entry and exit points.

If you’re interested in profiting from the popularity of commodity exchanges, a unique way to do so is to purchase equity in these exchanges directly. The benefit is that you get to capitalize on the growing commodity trend without actually having to buy commodity exchange-traded products.