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Commodities Trading 101: Investing in Silver, Gold or Water

Following up on What Is the Average Return of the US Stock Market?, this week post is a compilation of past articles on commodities trading. I recommend that you bookmark as I’ll be updating each with the goal of providing evergreen content.


To recap, commodities include raw materials, like agricultural products, livestock and meat, energy products and metals in bulk. Commodities trading is the buying and selling of these raw materials. At times, it involves the physical trading of goods. But more often it happens through futures contracts which specify the terms of delivery of an asset for a specified date in the future.

Futures contracts are typically traded on commodity exchanges, the two largest exchanges in the U.S. being the Chicago Mercantile Exchange and the New York Mercantile Exchange.

When trading commodities, you bet on how the commodity's price will move. If you think the price of a commodity will go up, you buy futures, or go long. If you think the price will drop, you sell futures, or go short. Prices can be affected by any number of factors, including weather, war, politics, trade regulations, demand, or the strength of the global economy.

Commodities are significantly more volatile than stocks or bonds. They offer diversification to a portfolio since they usually have a negative correlation with equities.

Commodities Trading: Investing in Silver

Throughout history silver has had a mixed performance as an inflation hedge. It’s the second most-common precious metal and an important industrial metal used in the electrical, electronics, and photography industries of which there is a limited global supply.

Commodities Trading: Investing in Gold

Historically, gold has exhibited an inverse relationship to the U.S. dollar… as the dollar weakens, gold prices tend to rise.

Commodities Trading: Investing in Water

Opportunities exist for investors to attempt to capitalize on growing trends in water renewal, conservation, treatment, and purification, by investing in water-related companies or index funds that invest in them.


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