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Commodities are basic goods that can turn into other goods and services. For new and experienced traders, choices differ. So, before you start investing in commodities, check out the following items and see if you want to put them in your nest egg.
First, let’s define commodity investing.
Commodity Investing Explained
Commodity investing has been around for centuries. A very important business, it linked cultures and people together.
Benefits
Among the most significant benefits of commodity investing is the protection investors get against the side effects of inflation.
In general, the demand for commodities goes high in times of high inflation, which increases prices.
At the same time, commodities serve as a good hedge against any downturn in the US dollar. That’s because when the buck buckles, commodities rise.
Crude Oil
Crude oil is perhaps the most well-known commodity traders trade. But how is crude oil made and why is it such a big deal?
After production, refineries refine crude oil into many different products like gasoline. However, it’s not only gas.
Petroleum products also include plastics, linoleum, medicines, shingles, cosmetics, ink, artificial fibers, fertilizers, asphalt, and many others.
What Moves Crude Oil Prices?
In general, crude oil prices move according to the law of supply and demand. High demand means lower supply, and this situation generally mean higher prices.
When demand decreases, supplies become consistent. Then, prices drop.
Geopolitics also play a major role on the price of crude oil. Political tensions in the Middle East can send oil prices to the moon since there is where much of the world’s oil is produced.
How to Invest in Crude Oil?
You can invest in crude oil by buying stocks of oil companies, crude oil mutual funds, and even exchange-traded funds. Or you can buy physical oil, if you’re that savvy.
Gold
The gold market is attractive for its diversity and growth. Gold can be used in jewelry, technology, and others. It’s used by both central banks and investors, making it rise in different markets within the world economy.
Also, gold has traditionally been a safe investment as well as an inflation hedge. Gold prices usually go up when the dollar goes down.
Similar to crude oil, gold moves according to supply and demand.
How to Invest in Gold?
As opposed to crude oil, investors can easily take possession of physical gold. They can do this by buying gold bullion bars or coins.
On the flipside, this method means you must pay for a place to store the asset such as a safety deposit box or a vault.
You may also invest in futures contracts, which require investors to deposit an initial margin.
You can try stocks and ETFs. With gold stocks, investors can invest in companies that produce gold, or they can pour their money on exploration and mining companies.
As with any other investment, it’s wise to perform research first before committing. Understand the company’s business model and know the operational risks you must face.
On the flipside, gold ETFs offer exposure to gold while also tracking its price.
The key to success is awareness. That’s why you need to go and check Finance Brokerage educational websites available. And you can choose the one that suits you the best in the Online Trading Courses offered.
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