A Risky Investment Becomes Commonplace
Keywords: Exchange Traded Funds, ETF, Commodities, Commodity Funds, Index Funds, Money, Investment
It was not that long ago that investors heard the words ‘Commodity Investments’ and for the most part ran the other way. These investments meant investing in the highly leveraged and volatile futures markets, something most investment advisor’s would tell their clients to stay clear of.
Now with the addition of newer investment vehicles into the market, these investments are becoming more commonplace. All over the world both investment institutions and individual investors are fueling commodity prices with their investments.
Large and small investors are now buying easy to trade investment vehicles such as Exchange Traded Funds. These funds are an easy way to give investors an entrance into the commodity markets. Instead of buying Futures through commodity brokers, investors can now buy Exchange Traded Funds, which trade like stocks, that invest in commodity based investments. The streetTracks Gold fund (GLD) has become very popular since its inception. Millions of dollars are flowing into this fund. Soon a similar fund that buys physical silver will become available for trading.
Some of these exchange traded funds buy the actual physical commodity, and some of the newer ones put their investment money into the futures markets. These ETF’s are allowing small investors to enter an investment area that they previously did not have easy access to.
There is some evidence that money pouring into these funds has boosted some commodity prices such as oil and silver. The fundamentals of the supply and demand for these raw materials does not support the total run up in prices we have been seeing.
In recent weeks we have seen a lot of volitility in these ETFs. The streetTRACKS Gold and Comex Gold funds zoomed to new highs. These prices were the highest gold has been in years. Investors large and small poured money into these funds. The the energy and precious metals funds had a hugh downday. Many of the speculators were caught by suprise and watched some profits dissolve. As this is being writen, gold has not yet recovered.
The oil related stocks are trying to stage a comeback. The point is that these commodity related Exchange Traded Funds are not for the weak hearted. If you decide to invest in these funds, be prepared for some large swings. This is an area that can have great volitility.
Stocks have been flat for a long period of time. Investors have been looking for other vehicles to boost their returns. With the emergence of Exchange Traded Funds that invest in the commodity markets, investors both large and small, have taken the leap.
Exchange Traded Funds have given small investors a larger choice in their investments. Small investors need to diversify their investments and not depend on commodity based investments alone to boost their portfolio’s. Exchange Traded funds give investors more choices, but also force the investors to do more research on markets that they previously have no experience in.
Andrew Goldman is president of Metal Rabbit media services, the operator of www.exchangetradedfundinvesting.com. He has written a number of articles on finance and investment over the last ten years.
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