How to invest in commodities
Is Oil ETF or similar commodity etf
good option for investment ?
Commodities are very hot theme these months (2011) and therefore there are a lot of questions in style "How to invest in commodities ?". They are experiencing huge rising uptrend and a lot of commodities generated huge gains for commodity investors. And there is very strong public opinion that they are one of the best ways to invest money.But my personal opinion is that commodities are not so good for buy and hold long term investment. There is one fundamental reason to avoid long term holding of commodities in your portfolio. I have made large research for my
Global macro research notes
regarding this issue. And it is that when price of some commodity reaches very high level, then it allows development of alternatives. And as these alternatives are improving in the time, then they can start to replace former commodity. Can you imagine that we discussed seriously electric vehicles like cars 10 or 15 years ago ? Only as very strange option and may be more like idea from science fiction book. But today (2011) there are already several different models of electric cars developed. They are not heavily produced but some of them are already in test and I expect that we will use electric vehicles in next years. Rather sooner then later. And such development is very bearish for oil. Price of oil depends on its usage for cars. What happens when demand for oil will decline by 50 % or more ?
But it is wise to use commodity etf shares
for short term and mid-term trades
But it does not mean that you or me should avoid to invest or trade commodities in shorter time frame. Swing trading or position trading/investing using
commodity ETF
shares could generate nice profits for your portfolio.Here is example how to use
Natural gas ETF
to realize one of my Global macro strategy I also apply to my position trades portfolio.
Another
list of examples
for developing of commodity ETF investing strategy are described for ishares gold ETF and ishares silver ETF shares. So my reply to the question "How to invest in commodities" is often that they are good for mid term or short term but not for long term buy and hold investment.
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