Long Term Commodity Investing
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Transcript of Long Term Commodity Investing
Long term commodity investing can be used as a hedge against inflation, a
means of balancing an investment portfolio against
the slide of the dollar.
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The market sets the price of commodity futures based on expectation of what the spot
price will be the day of contract expiration.
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For example, oil futures for July 2010 delivery are $76.31 a barrel for light sweet crude.
December 2018 light sweet crude futures are $94.98.
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Despite oil selling for $150 a barrel just a year or so ago the market only expects to see oil to go up by less than
25% in eight and a half years!
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If you assume that the market expects to see the dollar languish a bit then the
commodity market does not expect to see the price of oil
go up.
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An excellent means of learning long term
commodity investing as well as short term trading of
commodities is with Commodity and Futures
training.
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With the use of fundamental and technical analysis traders can follow oil prices, futures
prices, the fortunes of oil companies, and the rate of
exchange of the dollar.
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Using such technical analysis tools as Candlestick pattern formations and engaging in
Candlestick trading tactics it is possible to profit from
trading in the short term. It is also possible to profit from
long term commodity investing.
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In commodity investing over a longer time frame the trader may be more interested in
hedging against inflation and the fall of the dollar or in betting
that a sustained economic recovery will emerge and drive up the price oil futures, natural gas futures, copper futures and futures in other raw materials.
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When considering long term commodity investing the
trader needs to learn about which commodities are useful
for long term investing.
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Here we are not talking about buying the commodity itself
but in investing in commodity futures. One of the practical
reasons for not trading commodities is lack of
information. Commodity markets are largely to
province of producers and buyers of commodities.
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Mining companies, for example, will hedge their risk by selling futures contracts.
By selling contracts at slightly less than next year’s
expected spot price the company will lock in part of
their necessary cash flow at a reasonable price.
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The buyer will likewise lock in a manageable buying price.
Commodities traders can profit from these actions. Oil
producers, using the preceding example, are
interested in having some degree of stability to the oil
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So long as they can lock in a profit on part of their
production they will be pleased. If, for example, the
price of oil goes up substantially these companies will still profit to a degree on
the futures they have sold and more so on then current
production.By: www.CandleStickForums.com
Long term commodity investing in oil futures, for
example, could be very lucrative if the recession
mends itself and the price of oil goes up.
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The commodity trader will have bought oil futures for delivery in 2018 at today’s low price. He or she will be
able to cancel out the contract by selling at new,
higher price.
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If, in fact, the dollar has slid in value the trader will have successfully hedged against the effects of inflation and
pocketed a little extra along the way.
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In long term commodity investing, fundamental
commodity analysis and the investment time frame are important in formulating
investing goals.
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