As an investor, you never want to put all your investment eggs in one basket. In addition to investing in stocks, bonds, currencies, precious metals,  investing in commodities can provide yet another avenue to diversify one’s portfolio. Unfortunately, many investors overlook the opportunities available to them in commodities. There are several ways to invest in commodities, which are raw materials that are either used directly, such as food, or indirectly to produce another product.

If we look at the recent situation where the Covid lockdowns forced oil prices down to below $0 for a brief period of time. Savvy investors at the time took advantage of those once inn a lifetime global crisis to invest in oil and reaped massive gains as the global economy started to recover and the price of oil went from $0 to over $100.

You can invest in commodities in several different ways including by purchasing physical goods, such as gold, or by purchasing ETFs that track specific commodity indexes. You can also buy stocks of commodity-related businesses such as oil and gas producers or miners of base metals such as copper, zinc, nickel, ore, etc..

Some  of the most traded commodities are:

  • Oil
  • Natural gas
  • Metals
  • Corn
  • Wheat
  • Soybeans
  • Cattle
  • Hogs
  • Lumber

Commodity industries are all about supply and demand. In any individual commodity industry, the product is largely the same. Wheat is wheat, cattle are cattle. Because of this, producers are all price-takers and in normal times are not able to dictate prices. Many commodity industries are prime examples of what’s called perfectly competitive industries, with many buyers demanding an undifferentiated product and suppliers unable to offer differentiated products.

Here are some keys to think about when considering investing in commodities:

  • Investing in commodities can provide investors with diversification, a hedge against inflation, and excess positive returns.
  • Investors may experience volatility when their investments track a single commodity or one sector of the economy.
  • Supply, demand, and geopolitics all affect commodity prices.
  • Investors can trade commodity-based futures, stocks, ETFs, or mutual funds, or they can hold physical commodities such as gold bullion.

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Market Notes

Market Notes – June 16/22

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The S&P 500 dropped 123 points or 3.25% and is now close to testng the 50% Fibonacci retracement level from the rally from Mar’20 to Jan’22.  Remember our warning all through this year… bear market rallies tend to be sucker rallies, usually failing to reach new highs, and instead make new lows. We are neutral right now, with our insurance trade offsetting our long play.

We do have a great list of stocks on our watch list, but we are NOT buying the dip here. We will let our subscribers know when our models trigger a BUY Signal. If you want receive those BUY Signals when they are triggered, subscribe now to the Trend Letter and receive 50% off the regular rate. Click here to take advantage of this  special offer.

Yesterday Fed chair Jerome Powell stated ‘Overall, spending is very strong, the consumer’s in really good shape financially — they’re spending. There’s no sign of a broader slowdown that I can see in the economy.’ That is quite an astonishing statement and we have no idea what data he is looking at. Every consumer sentiment chart we see shows consumers are anything but confident.

Even the Atlanta Fed, Powell’s own institution, is now forecasting Q2 GDP to come in precisely at 0.0%. That’s down from a 2% forecast in May and then a 1% forecast earlier this month. Given that the consumer accounts for~70% of the economy, how can he possibly say the consumer is in ‘really good shape financially’

Inflation was caused by excess government spending, a very dovish Fed, and high energy prices caused by the Ukraine war and extremely nearsighted energy policies.. The way the Fed seems to be planning to stop inflation is to drive the economy into a recession. And then once the recession takes hold, those laid off workers will not be able to afford things like gasoline or healthy food, so the prices will finally start to fall.

Gold had been oversold and had a nice bounce today. Still trading in 1800-1975 range.

Mortgage rates for the US 30-year jumped by the most since 1987 and are now at the highest level since 2008, which coincided with the real estate crash and a recession. Sound familiar?

Stay tuned!