Which commodity should i invest in

Many investors flock to gold during a bear market , for example. Commodities are also a common inflation hedge. High inflation often causes commodity prices to soar, whereas stocks and bonds perform better when inflation is lower. Commodity trading isn't the only means of investing in commodities. You can also invest in stocks of companies that produce commodities. Or you could invest in exchange-traded funds ETFs or mutual funds that track the commodity. Here are four basic ways to invest in commodities.

If you want to invest by physically buying a commodity, one advantage is that you don't have to go through a third party. Typically you can do a simple internet search to find a dealer to sell you a particular good, and when you no longer want it, that dealer will often buy it back. But you have to figure out delivery and storage logistics. If you're buying gold, this may be relatively simple. You can easily find a coin dealer online who can sell you a bar or coin. You can safely store it and later sell it as you wish.

But it gets a lot harder when you're trying to figure out delivery and storage of cattle, crude oil, or bushels of corn. For that reason, investing in most physical commodities typically takes too much effort for individual investors. You can trade futures contracts as long as you have a brokerage account that allows for it.

But futures contracts are largely designed for major companies involved in commodities, rather than individuals. For instance, say you're a corn farmer. You want to be sure that you'll be able to get at least the prevailing market price for your crop. On the other side, say you're a food processing company that needs corn to produce cornmeal for food retailers. You don't want to risk higher prices if there's a smaller crop.

If prices fall, you lose because you pay more than the prevailing market price. As an investor, you can also speculate on corn prices. For example, let's say you buy that same futures contract. You have no intention of actually buying 5, bushels of corn in 90 days, but you're betting that corn prices will rise and you'll be able to sell it for more money. Or you can take a short position if you believe prices will fall.

One big risk of trading commodities is that the margin requirements are significantly lower than for stocks. When you trade on margin, you're trading borrowed money, which can amplify your losses.

Given how volatile commodity prices can be, it's essential to have enough resources on hand to cover any margin call, which is when your broker requires you to deposit more money. Another way to invest in commodities is to buy shares of the companies that produce them. For example, you could buy mining stocks , oil stocks , or agriculture stocks. A commodity-producing company won't necessarily rise or fall in line with the commodity it produces. Sure, an oil production company will benefit when crude oil prices rise and suffer when they fall.

But far more important is how much oil it has in its reserves and whether it has lucrative supply contracts with high-demand purchasers. Commodity ETFs and mutual funds offer commodity exposure for those who don't want to buy the commodity directly. This essentially makes GRN a play on global warming. It is designed to track the movements of gasoline prices and offers investors a way to bet on a rise in gasoline prices by investing in listed reformulated blendstock for oxygenate blending RBOB futures contracts and other gasoline-related futures.

The fund may also invest in forwards and swap contracts. UGA provides investors with a way to get short-term tactical exposure to a specific segment of the energy market, and it is not likely to appeal to those building a long-term, buy-and-hold portfolio.

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But some experts argue that investors need further diversification in their portfolios to help reduce risk and smoothen out returns. Commodities , such as precious metals, oil, agricultural products and more, move based on their own highly specific industry conditions. For example, if gold is rising, it may be due to a host of differing supply and demand issues that have nothing to do with natural gas or hogs, for example.

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.