How can you make money from rising commodity prices?. There are several ways to invest in the commodities market. First of all, you can buy commodities in physical form. This is a viable option, especially for precious metals, and is also suitable for some strategic metals. For the investment in physical raw materials, in my opinion, only those are eligible that have 1. sufficient value density and 2. are easily storable.
With value density, I mean that you do not have to clear an entire garage for the use of 5000 euros. Take silicon, For a few thousand euros, you get a lot of big bags of each tonne. Of course, this is not practical, nor is the purchase and storage of wheat or corn, which also poses the problem of perishability.
What are the Best Commodities To Invest In
There are also commodities that should not buy because of the risks. An investor asked me if lithium was a nice investment opportunity. Although this metal is currently being used increasingly for applications such as lithium-ion batteries, it is explosive. You do not want to have something like that in the cellar. For metals such as zirconium, due to the possible use in nuclear power plants, legal regulations must be observed.
You can also bet on commodities by buying stocks from commodity companies. For example, you can participate in one of the largest producers of iron ore with the Vale share.
However, I personally like it better to invest directly in raw materials, be it in the form of buying directly or buying certificates. After analyzing supply and demand, I came to the conclusion that a given commodity should rise in price. Why not stop here and put it directly on the commodity?. I can control the desired level of risk by choosing a certificate, from commodity ETF backed by physical commodities to long, high-level certificates. Why take additional risk into the portfolio?
Thus, physical gold cannot go bankrupt, it can not publish fake quarterly balance sheets or have problems with the tax authorities. On the other hand, a commodity explorer who is looking for gold can do that.
It may be interesting to compare the performance of gold mining stocks with gold prices. For example, if the HUI index (which is the short name of the ARCA Gold Bugs Index) is well below the gold price, there might be some catching up to do. The HUI index contains the stocks of international gold producers. A rising gold price is reflected indirectly rising sales and vice versa.
How to Store Commodity?
There are many possibilities for storage: from the bank’s safe deposit box to the vault in the basement. Generally, you should package individual metals separately. For example, metals such as indium have a significantly lower melting point than tantalum. In the case of a home fire and storage in the basement, the separate packaging can save some trouble.
In addition, there are professional providers of warehouses, which is particularly interesting for strategic metals. If you decide on a safe in your own house, you should first check the load capacity of the wall and the floor. There are safes with a curb weight of over 1000 kilograms per square meter. I recommend that you pay attention to ECBS classification when choosing a safe. ECBS stands for European Certification Board Security Systems and is popular for a recognized test certificate. The higher the classification of the safe, the safer it is.
You should buy a vault that has a security level higher than you currently need. The stored (precious) metals should eventually rise in value. And also choose 25 to 30 percent more interior volume than you currently need. Experience has shown that over the years there is still something added. This can only be an initial guide to choosing a suitable vault for you; expert advice is essential, as well as the professional installation.
If you then contact your insurance, private storage is quite an interesting option. Raw materials suitable for physical storage include gold, silver, platinum, tantalum, bismuth, chromium, cobalt, and indium.
Most commodities were still tradable for private investors at the beginning of the millennium, except through the detour of commodity futures on the stock exchanges New York or Chicago. There, however, high fees were incurred, and even worse, the potential losses were not limited to use. Because with these transactions one could and can lose more than the originally invested capital. This was the background of the high speculative losses of many German private investors in the commodities sector. Therefore, I strongly advise against this route unless you are a professional.
Meanwhile, the picture has changed completely: Since the success certificates on the Stuttgart Stock Exchange (the so-called Euwax) and the Frankfurt certificate exchange (Scoach) exploded the number of underlying assets. Gold coupons had been around for a while, and oil was known as the underlying asset. But now precious metals like silver, platinum, and palladium have been added. This was followed by the industrial metals: copper, zinc, aluminum and the like. And finally, the raw materials.
The necessary infrastructure for private investors to invest in commodities is thus available. While there are still some raw materials that are not covered, they are economically relatively insignificant. By the way: You can benefit from rising as well as falling commodity prices. Leverage certificates are usually available both as a long and as a short certificate. With a long certificate, you bet on rising, with a short certificate on falling courses.
It will not surprise you that I see fundamentally better opportunities on the long side in the current commodities bull market. However, this does not mean that you cannot make money in correction phases even with short certificates. And there will come a time when the commodities bull market is coming to an end and the short certificates will again be generally more attractive than the long ones. Nothing is forever.
So if you want to bet on sugar or corn, forget about physical storage. Buy instead certificates. However, the basic prerequisite for this is that you have a securities account and understand how commodity certificates work.
This Is What You Need To Trade With Certificates
You need a depot, there is no way around it. However, it does not have to be a special certificate deposit because there is no difference between a share and a certificate deposit. A deposit can hold both asset classes. I do not advertise a particular provider. In general, I recommend that you select a direct broker due to the lower fees, which meanwhile hardly differs from other providers when it comes to executing the trades. Since this article cannot be up-to-date, I wave a fee comparison. However, I can give you a rule of thumb: Do not choose a broker that charges more than 15 euros for a transaction worth 3000 euros.
The best way to find out about the current fees of the respective provider in the Internet and then select accordingly.
The maturity required until 2007 to trade in certificates is no longer necessary. Instead, it is enough for the bank/broker to inform the client about the risks before concluding a transaction. Otherwise, the customer may claim for damages. In your own interest, you should understand what instruments you are trading.