Commodities Rising: The Reality Behind the Hype and How To Really Profit in the Commodities Market

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The Commodities Rush Is On

Commodities prices have risen sharply since 2003. The financial press attributed this to an increased use of basic commodities in China and other developing countries. Increases in actual demand—what the market calls fabrication demand, as opposed to investors buying for hoarding or speculative purposes—both within developing countries such as China and in industrialized nations such as the United States and Japan, has been a factor. However, an even larger factor has been the rush of investors into commodities. Several hundred billion dollars have been invested in commodities since 2003, almost all of it on the long side of the market. Commodities prices are in the midst of a speculative bubble, similar in some ways to the tech bubble of the late 1990s. From individual investors to large institutional investors, even savvy and experienced professional money managers are falling into this common trap and ignoring basic economics, finance, and logic. They go long and stay long at the wrong time.

The idea that many investors who rushed into the commodities markets will lose a lot of money quickly should not surprise anyone. It is the way that commodities investments have played out for centuries. In the futures markets, which represent the most common and visible way for investors to participate in commodities, various industry association studies show that the majority of investors who get involved in futures lose money. It is not that the futures or ...