Commodities become “next big thing”

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Traders turn their attention to commodities, a safe and profitable area of investment

Traders turn their attention to commodities, a safe and profitable area of investment

With both individual and institutional investors still working to restore their portfolios and get back on track after recent market difficulties, it should not come as a surprise that commodities have captured a lot of attention. The fact is that investing in commodities is a little different from investing in stocks or bonds, which may be one reason why so many investors are interested in what they could earn with commodities like oil, sugar, corn or even pork bellies. While having their own set of risks, the fact is that commodities today are often a better bet than other investments, especially if the investor knows what he or she is doing.

There are several reasons why commodities are gaining so much attention these days and entering such a strong bull run. One is that many investors lost so much with stocks over the last few years that they are now beginning to look for alternative opportunities. Another reason is that while commodities were hardly exempt from the effects of the recession, many did perform better than other investment types, even during the worst of that period. This in turn has triggered some degree of confidence among investors, leading to more individuals, as well as investor groups and companies, being willing to allocate more of their portfolios to commodities.

As with stocks, the darlings of the commodity world tend to change over time, although there are perennials that seem to always be in demand, in recent months, metals have been at the top of the chain. Lead and platinum continue to perform well and there are indications that gold will experience another rush over the next several months, which will likely move it from the usual steady rates to something much more. Old standbys, like corn or maize, remain popular, as does wheat. Rubber and copper are also considered good bets in the commodities world.

Metals, like gold, coal and other types of commodities that are mined rather than grown are proving very lucrative for investors. Mining companies, such as Teck Resources or Vale are worthy of consideration, as is the Barrick Gold Corporation. Using the performance of the commodities produced by these companies can serve as a benchmark for deciding what type and how much to invest in different commodities, while still maintaining some balance in the portfolio.

It is important to note that just because an investor knows the world of stocks well, that does not necessarily translate into being savvy with commodities. In many ways, this type of trading is a different game altogether. For this reason, even seasoned investors who are considering a foray into commodities would do well to educate themselves on what is happening in the market. Along with working with a reputable commodities broker, making use of online resources, such as investor forums with a section for commodities, could provide some helpful information and avoid the possibility of making some costly trading selections.

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