Companies focused on these raw materials are classified according to two criteria that should be considered when contracting these financial products. Firstly, based on their size. Naturally, smaller companies carry the greatest risk . A further distinction is made between producers and operators. Operators assume the risk of exploration and extraction, while producers focus on processing and distribution. This information is crucial when formalizing this investment option.
It's also important to note that the main market for trading gold, silver, and other non-precious metals (such as aluminum, copper, lead, nickel, zinc, and tin) is COMEX. However, platinum is an exception, as its primary markets are TOCOM, where transactions are conducted in the Japanese yen, and NYMEX. These are the financial markets you should visit if you wish to invest your savings in any of the aforementioned commodities or others with similar characteristics.
On the other hand, the gold market is heavily influenced by flows generated in the futures markets. While the correlation for crude oil is 50%, in the case of gold, the price can be explained by 70% to 90%. In any case, you can't forget that some of the providers of products in the financial market are Merrill Lynch, Ruffer, and SG, among the most relevant. These are the companies that market products of this type and offer different solutions to small and medium-sized investors.
Commodities: high volatility
Among the most important characteristics of this type of investment, known as an alternative, is its use of currencies other than the euro . Indeed, it's crucial to remember the appreciation of the US dollar, given the historical negative correlation between it and some of the most important commodities. Furthermore, it's important to note that the volatility of funds based on these financial assets is around 20%. Therefore, the risk in these transactions is always much higher, to the point that significant fluctuations can occur in your alternative investment portfolio.
This means that the differences between its maximum and minimum prices are very significant and, in any case, higher than in other more conventional investments, such as buying and selling shares on the stock market. This makes it a very suitable product for trading or speculative operations due to the high degree of price volatility. You can make a lot of money, but for the same reason, you can also lose a lot of money along the way.
How to hire them?
Another risk factor is the significant influence that ETFs and other derivative instruments have on the price of these commodities and on the inflows and outflows of this financial asset. It's worth remembering that exchange-traded funds (ETFs) are a hybrid of traditional investment funds and buying and selling shares on equity markets. Their advantage lies in offering more competitive fees , allowing you to maximize the returns on some of these commodities and potentially save a considerable amount on management and maintenance costs.
Exchange-traded funds (ETFs), on the other hand, offer a wide range of models that provide this feature. They are based on different commodities: gold, coffee, wheat, soybeans, and cocoa, among others. Through a well-defined investment portfolio, from its creation to the settlement of transactions, you can direct your investments across all time horizons: short, medium, and long term. This is tailored to your investor profile as a small or medium-sized investor: aggressive, intermediate, or conservative/defensive.
Direct hire
On the other hand, there's also the possibility of increased mining production , allowing you to purchase raw materials directly on the markets where these financial products are bought and sold. This isn't due to new mines, but rather to increased production from existing ones. This risk is mitigated by the high dividends distributed by the companies responsible for their marketing. It's worth noting that their reinvestment policy has been minimal, which is always advantageous for small and medium-sized investors.
In this regard, it's very interesting to note that many publicly traded companies are closely linked to the production of these raw materials, both in domestic and international markets. This allows you to better diversify your investments from now on, without compromising the profitability of your financial transactions, which is precisely what you want. This way, you can invest your capital, for example, in wheat or cocoa, commodities that have shown high returns in recent months.
Raw materials in funds
Another alternative for channeling your investments is through investment funds of this type . One of their main advantages is that they can be complemented with other financial assets, whether from fixed income, equities, or even other alternative models like this one. This allows you to diversify your investments in an optimal and stable way, building a very attractive savings portfolio for the medium and long term. This serves as an investment strategy to maximize the returns on your savings over these periods.
On the other hand, investment funds based on these unique financial assets offer an alternative to more conventional investments, especially when significant instability arises in equity markets for one reason or another. They provide a solution to the lack of investment options other than simply buying and selling shares on the stock market, as is currently happening with the stock market's trend reversal from bullish to bearish. This can undoubtedly discourage you from your efforts to grow your savings.
Characteristics of these markets
There's no doubt that benefiting from the opportunity cost of holding premiums on balance sheets due to higher interest rates is one of the advantages offered by commodity investing. This outweighs other technical considerations and perhaps even fundamental ones. Because commodity investing has always been a readily available resource for small and medium-sized investors, especially in years when price stability was a key characteristic.
Furthermore, you can't forget that this type of investment wasn't speculative at all, although its structure has changed in terms of how it operates. To the point that investing in these specialized products is no longer the same. Not surprisingly, the risks are increasingly higher, partly due to their high volatility, which can reach up to 30% or 40% in price formation. This makes it even more difficult to adjust prices, both when buying and selling.
Current situation of the markets
Currently, some commodities are highly profitable, offering returns exceeding those of equity markets. This is especially true for precious metals, which have yielded returns on savings of nearly 50% over the past year . Gold, in particular, acts as a safe haven asset during periods of stability in equity markets, attracting a significant portion of investors seeking peace of mind when building their investment portfolios.
Finally, it should also be emphasized that this class of investments should serve as a complement to the main ones. Never as a priority movement since this investment strategy can produce unwanted effects on your income statement. Beyond another series of more technical considerations. In any case, you should analyze these investment proposals because there is a lot at stake in this kind of operations on raw materials. Because on the other hand, most of these operations are carried out in other currencies other than the euro: US dollar, Swiss franc or Japanese yen. With the monetary cost that the currency exchange entails in each of the chosen financial products: commissions, fees, etc.