As commodity prices rise, investors are becoming more interested inthis alternative asset class to traditional stocks and bonds. Commodities areraw materials that are consumed or utilised to create other goods. Commodities come in a variety of shapes and sizes, ranging from orange juice to cotton, oil and gas to gold.
Commodity demand is rising as the US economy recovers from pandemic-inducedlockdowns and expenditure climbs across the board. According to William DeVijlder, group chief economist at BNP Paribas, this is a significant change from last year, when commodity prices plummeted and oil prices were negative.
With the economy replete with fiscal and monetary stimulus, somecommodities, such as gold, may be reflecting rising inflation concerns. Othercommodities, such as copper, are seeing a structural demand shift, according to De Vijlder, because the metal is utilised in products like electric vehicles and other climate-related infrastructure.
How to make money by investing in commodities
According to Will Rhind, CEO of GraniteShares, an exchange-tradedfund issuer, there are numerous ways to invest in commodities. The followingpossibilities should be considered by investors.
Invest in commodity producers' stocks and bonds
Purchasing commodity producer stocks and corporate bonds is apractical approach to invest in commodities. Many of them are S&P 500companies, such as Exxon Mobil Corp. (ticker: XOM) and Archer-Daniels-Midland Co., an agricultural producer (ADM). Other large commodity-producing enterprises are not based in the United States. BHP Group (BHP) of Melbourne, Australia, operates in more than a dozen countries and extracts a variety of commodities ranging from oil and gas to coal, copper, and iron ore — it's an example of a global commodity stock. Barrick Gold Corp. (GOLD), a Toronto-based metals miner with international interests and gold and copper mining operations, is another example.
Invest in a commodity exchange-traded fund (ETF)
Rhind points out that commodity ETFs come in a variety of shapes andsizes. Some, such the VanEck Gold Miners Equity ETF (GDX), are commodityproducer indexes, while others, like the GraniteShares Gold Trust (BAR) and the iShares Silver Trust, invest in the commodities itself (SLV).
Purchase physical commodities
Purchasing precious metals such as gold, silver, platinum, andpalladium is the simplest way for investors to obtain exposure to physicalcommodities. Precious metals dealers sell these in the form of coins and bars. Check to discover if the dealer is a member of metals industry organizations like the Industry Council for Tangible Assets or the Professional Numismatists Guild to find a reliable dealer.
Commodities can be used as a protection against inflation
Various individuals are concerned about inflation because of thecurrent supply/demand shortage for many products, from semiconductor chips tobeef. According to Tom Essaye, author of the Sevens Report weekly, commodities are the most highly associated to inflation of the major asset classes – stocks, bonds, and commodities – and commodity ETFs have performed well during periods of rising inflation.