Which commodity to buy

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.

Commodity funds may invest in physical materials, commodity stocks, futures contracts, or a combination. However, commodity funds may not move in sync with the price of the underlying good, which can come as a surprise to new investors. Commodity trading is a high-risk, high-reward endeavor.

It can be an effective way to hedge your portfolio against a bear market or inflation. But you should consider it only if you have a strong understanding of the supply-and-demand dynamics of the commodity market. That includes knowledge of historical price trends and what's happening in real time. If you're getting started, you can reduce your risk by limiting your use of margin. Much of commodity trading amounts to speculation, not investing.

Unpredictable factors like the weather, disease, and natural disasters can have huge impacts on commodity prices in the short term. If you're looking to invest in a commodity for the long term, commodity stocks, mutual funds, and ETFs are a better option for most individuals.

If you have crude oil in mind, it helps to know what shapes prices and how you can invest in this commodity. After production, crude oil is refined into many different products including the gasoline we use to fuel our vehicles. But it goes beyond just gas. Products made from petroleum include plastics, medicines, linoleum, shingles, ink, cosmetics, synthetic fibers, solvents, fertilizer, asphalt, and thousands of others. But what affects prices?

Crude oil generally reacts to the laws of supply and demand. The higher the demand, the lower the supply. When that happens, prices tend to rise.

When demand wanes, supplies are fairly consistent, leading to a drop in prices. For instance, when gas is in high demand—say, during the summer driving season—the price at the pumps rises, translating into higher crude oil prices. Similarly, demand from developing nations such as China and India—whose economies are still growing—is also pushing up prices.

Geopolitics also has a big impact on the price of crude oil. Tensions in the Middle East, where much of the world's oil is produced, can send oil prices skyrocketing. Investing in physical crude oil isn't as easy as investing in other commodities; you can't just buy a barrel of oil. As an investor, you may consider futures; the most direct method of owning the commodity outright. But futures can be highly volatile and need a good deal of capital. And they also require a great deal of knowledge, so it's not really a good option for novice investors.

Investors may consider purchasing stocks in oil companies, crude oil mutual funds, or even ETFs. These vehicles trade on exchanges just like stocks, so they're easy to come by. The U. Oil Fund is one example. It tracks the movement of West Texas Intermediate light, sweet crude oil.

Other options include buying shares in mutual funds or energy sector ETFs, which invest directly in oil company stocks. These options tend to come with lower risks because they have more diversified offerings. The gold market boasts diversity and growth.

It's used in jewelry, technology, by central banks, and investors, giving rise to its market at different times within the global economy. The precious metal has traditionally been a safe investment and a hedge against inflation.

When the U. Just like crude oil, when there's an increase in demand, the same happens to the price of gold. Furthermore, prices are affected when central banks—which hold gold—decide to diversify their monetary reserves by buying more gold.

Unlike crude oil, investors can take possession of the physical commodity. Investors who want to hold the physical commodity can do so by purchasing gold bullion bars or coins. But this means having to pay to store it in a deposit box, vault, or another safe place. Another option, just as you would for crude, is to go through the futures contract. Contracts require investors to deposit an initial margin. But again, there is a risk to this kind of investment.

If the price rises, investors will profit. However, if the price drops, the investor stands to lose their money. Stocks and ETFs, along with mutual fund options are plenty. With gold stocks, investors aren't just limited to producers but also to exploration and mining companies. As usual, it's a good idea for investors to do their homework and see what the operational risks are for each company. Gold ETFs, on the other hand, provide exposure to the precious metal while tracking its price.

Base metals are common metals used in commercial and industrial applications, such as construction and manufacturing. Aluminum, zinc, and copper are good examples. They are relatively inexpensive, and supplies are generally stable because they're commonly found around the world. But because they are plentiful, prices tend to be much lower than they are for precious metals. However, the increase in the applications of base metals coupled with rising global demand—particularly from China and other developing nations—continues to positively impact prices.

Holding on to aluminum, zinc, and copper may not necessarily be very fruitful, Because of their prices, investors would have to hold copious amounts of these commodities in order to profit. Instead, holding stocks in base metals companies like aluminum company Alcoa or a steel company like U. SQM accounts for 0. Illinois-based Coeur Mining ranks 7th in our list of 10 best commodity stocks to buy now.

The company mines and explores key commodities including gold, silver, lead and zinc in the U. The company reported upbeat reserves at the end of Gold reserves of Coeur stand at about 3. The company is also getting the attention of the smart money, as 17 hedge funds tracked by Insider Monkey reported owning stakes in the company at the end of the fourth quarter, up from 15 funds a quarter earlier.

SSR Mining ranks 6th in the list of 10 best commodity stocks to buy now. The Canadian company explores gold, silver, zinc and tin, with the ownership of the largest silver mine in Argentina.

The company saw better results in the fourth quarter amid higher gold and silver prices and lower costs. Disclosure: None. Looking for the next 'big thing'? Cathie Wood knows where to find it. Buffett is betting big on his favorite company. It might be time to follow suit. The good news: Retirement at 58 may very well be within your reach, financial advisers said. One of the highest-priority tasks you will face if you retire at 58 or any time before Medicare is available at 65 years old is health insurance.

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