Questions to Ask before Investing in Any Commodity - dummies

Questions to Ask before Investing in Any Commodity

Whether you decide to invest through futures contracts, managed funds, or commodity companies, you need to gather as much information as possible before you start trading.

The performance of any investment vehicle you choose depends on that commodity’s actual fundamental supply and demand story.

Here are a few questions you should ask yourself before you start investing in any commodity:

  • Which country/countries hold the largest reserves of the commodity?

  • Is that country politically stable or is it vulnerable to turmoil?

  • How much of the commodity is actually produced on a regular basis? (Ideally, you want to get data for daily, monthly, quarterly, and annual basis.)

  • Which industries/countries are the largest consumers of the commodity?

  • What are the primary uses of the commodity?

  • Are there any alternatives to the commodity? If so, what are they and do they pose a significant risk to the production value of the target commodity?

  • Are there any seasonal factors that affect the commodity?

  • What is the correlation between the commodity and comparable commodities in the same category?

  • What are the historical production and consumption cycles for the commodity?