Investing in Commodities For Dummies. Amine Bouchentouf

gold, silver, and platinum are a great example of this. As the price of gold and silver has skyrocketed recently, you may have seen ads on TV or in newspapers from companies offering to buy your gold or silver jewelry. As gold and silver prices increase in the futures markets, they also cause prices in the spot markets to rise (and vice versa). You can cash in on this trend by buying coins, bullion, or even jewelry. I present this unique investment strategy in Chapter 7.

      

This investment strategy is suitable for only a limited number of commodities, mostly precious metals like gold, silver, and platinum. Unless you own a farm, keeping live cattle or feeder cattle to profit from price increases doesn’t make much sense. And I won’t even mention commodities like crude oil or uranium!

      Checking Out What’s on the Menu

      I cover 32 commodities in the book. Here’s a listing of all the commodities you can expect to encounter while going through these pages. (Although the book is modular in nature, I list the commodities here in order of their appearance in the text.)

Energy

      Energy has always been indispensable for human survival and also makes for a great investment. Energy, whether fossil fuels or renewable energy sources, has attracted a lot of attention from investors as they seek to profit from the world’s seemingly unquenchable thirst for energy. I present in this book all the major forms of energy, from crude oil and coal to electricity and solar power, and show you how to profit in this arena.

      ✔ Crude oil: Crude oil is the undisputed heavyweight champion in the commodities world. More barrels of crude oil are traded every single day (87 million and growing) than any other commodity. Accounting for 40 percent of total global energy consumption, coal provides some terrific investment opportunities.

      ✔ Natural gas: Natural gas, the gaseous fossil fuel, is often overshadowed by crude oil. Nevertheless, it’s a major commodity in its own right, used for everything from cooking food to heating houses during the winter. I also take a look at the prospects of liquefied natural gas (LNG).

      ✔ Coal: Coal accounts for more than 20 percent of total world energy consumption. In the United States, the largest energy market, 50 percent of electricity is generated through coal. Because of abundant supply, coal is making a resurgence.

      ✔ Uranium/nuclear power: Because of improved environmental standards within the industry, nuclear power use is on the rise. I show you how to develop an investment strategy to capitalize on this trend.

      ✔ Electricity: Electricity is a necessity of modern life, and the companies responsible for generating this special commodity have some unique characteristics. I examine how to start trading this electrifying commodity.

      ✔ Solar power: For a number of reasons that range from environmental to geopolitical, demand for renewable energy sources such as solar power is increasing.

      ✔ Wind power: Wind power is getting a lot of attention from investors as a viable alternative source of energy.

      ✔ Ethanol: Ethanol, which is produced primarily from corn or sugar, is an increasingly popular fuel additive that offers investment potential.

      

Other commodities are in the energy complex, such as heating oil, propane, and gasoline. Although I do provide insight into some of these other members of the energy family, I focus a lot more on the resources in the previous list.

Metals

      Metallurgy has been essential to human development since the beginning of time. Societies that have mastered the production of metals have been able to thrive and survive. Similarly, investors who have incorporated metals into their portfolios have been able to generate significant returns. I cover all the major metals, from gold and platinum to nickel and zinc.

      ✔ Gold: Gold is perhaps the most coveted resource on the planet. For centuries, people have been attracted to its quasi-indestructibility and have used it as a store of value. Gold is a good asset for hedging against inflation and also for asset preservation during times of global turmoil.

      ✔ Silver: Silver, like gold, is another precious metal that has monetary applications. The British currency, the pound sterling, is still named after this metal. Silver also has applications in industry (such as electrical wiring) that places it in a unique position of being coveted for both its precious metal status and its industrial uses.

      ✔ Platinum: Platinum, the rich man’s gold, is one of the most valuable metals in the world, used for everything from jewelry to the manufacture of catalytic converters.

      ✔ Steel: Steel, which is created by alloying iron and other materials, is the most widely used metal in the world. Used to build everything from cars to buildings, it’s a metal endowed with unique characteristics and offers good investment potential.

      ✔ Aluminum: Perhaps no other metal has the versatility of aluminum; it’s lightweight yet surprisingly robust. These unique characteristics mean that it’s a metal worth adding to your portfolio, especially because it’s the second most widely used metal (right behind steel).

      ✔ Copper: Copper, the third most widely used metal, is the metal of choice for industrial uses. Because it’s a great conductor of heat and electricity, its applications in industry are wide and deep, making this base metal a very attractive investment.

      ✔ Palladium: Palladium is part of the platinum group of metals, and almost half of the palladium that’s mined goes toward building automobile catalytic converters. As the number of cars with these emission-reducing devices increases, the demand for palladium will increase as well, making this an attractive investment.

      ✔ Nickel: Nickel is a ferrous metal that’s in high demand because of its resistance to corrosion and oxidation. Steel is usually alloyed with nickel to create stainless steel, which ensures that nickel will play an important role for years to come.

      ✔ Zinc: The fourth most widely used metal in the world, zinc is sought after for its resistance to corrosion. It’s used in galvanization, in which zinc coating is applied to other metals, such as steel, to prevent rust.

Agricultural products

      Food is the most essential element of human life, and the production of food presents solid money-making opportunities. In this book you find out how to invest in the agricultural sector in everything from coffee and orange juice to cattle and soybeans:

      ✔ Coffee: Coffee is the second most widely produced commodity in the world, in terms of physical volume, behind only crude oil. Folks love a good cup of coffee, and this provides good investment opportunities.

      ✔ Cocoa: Cocoa production, which is dominated by a handful of countries, is a major agricultural commodity, primarily because it’s used to create chocolate.

      ✔ Sugar #11: Sugar is a popular food sweetener, and it can be a sweet investment as well. Sugar #11 represents a futures contract for global sugar.

      ✔ Sugar #14: Sugar #14 is specific to the United States and is a widely traded commodity.

      ✔ Frozen concentrated orange juice – type A: FCOJ-A, for short, is the benchmark for North American orange juice prices because it’s grown in the hemisphere’s two largest regions: Florida and Brazil.

      ✔ Frozen concentrated orange juice – type B: FCOJ-B, like FCOJ-A, is a widely traded contract that represents global orange juice prices. This contract gives you exposure to orange juice activity on a world scale.

      ✔ Corn: Corn’s use for culinary purposes is perhaps unrivaled by any other grain, which makes this a potentially lucrative investment. Check out Chapter 10.

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