There are many ways in which commodities work in the market as an asset. Every rule is confirmed by what happen to the most listed raw materials at the moment: natural gas, gold, oil, and extraordinarily cryptocurrencies.
With the advent of cryptocurrencies, investing in commodities does not seem so advantageous. We have always treated commodities as the asset that always represents the best choice, thanks to their safe heaven feature.
We know, however, that raw materials are also subject to fluctuations and therefore to market volatility and do not always offer the best yield.
There are commodities, such as oil, which are defined like this but they are a safe heaven asset just for their name. If we add a swing trend to this, then a commodity becomes immediately an asset.
Commodities are an asset chosen by both professional traders and beginners. Successful traders want to negotiate using the volatility and commodity valuations performance to their advantage, while beginners can simply rely on the study of the meeting point between the demand and supply of the material, the output volume and weather conditions.
We can think about natural gas: at the end of October its stocks were still very high and its price has been falling for nearly two months. But as with all commodities, their season comes in handy and everything changes. With winter at the doors, natural gas stocks will drop and there will be a reversal in price rises, just because of the cold weather and the need to warm up.
Beware of another detail. Commodity trader has the ability to earn both when the value of the raw material increases and when it decreases, the important thing is to make a correct prediction on the possible quotation.
To illustrate this example we take the safe heaven asset and commodity par excellence: gold.
When the ECB decided to extend the quantitative easing program on last week, gold lost its value rapidly as the euro flattened. When gold undergoes such sudden falls, one of the major reasons was the dollar which was chosen as an alternative. If forecasts on the ECB’s moves were such as to guess all these movements, commodities traders would have been also benefit from the fall in the gold price.
In the world of commodities trading, most transactions concern futures contracts. These contracts mainly works on the New York Mercantile Exchange Chicago Board of Trade and the London Metal Exchange.
If you look particularly at the oil futures market right now you can note interesting things. Short-term contracts on the Brent are traded with a premium over six months or one year futures and the result is a downward curve of futures. This is because longer term contracts are cheaper than short-term contracts.
Here is another example of currencies and futures: cryptovalutes. Yes, just like that, cryptovalues are considered commodities by some analysts. This is because Bitcoin since the beginning of the year has not yet been able to show some stability that every currency should have.
Talking about futures, we conclude by saying that Bitcoin has managed to capture the attention of CME, the world’s largest futures exchange, which announced this week it would launch a bitcoin future by the end of this year. Are you ready to this?