How to Invest in Commodities?

Commodities represent an attractive investment opportunity not only for conservative investors. They are part of many successful portfolios and we consider them a safe haven for our finances, especially in times of economic or geopolitical uncertainty. Any raw material that can serve as an input in the production of other products can generally be considered a commodity. These investment products include, for example, coffee and cotton, but the most popular among traders are mineral and energy raw materials and precious metals.

Commodities from the category of precious metals, such as gold, have been known for their value since ancient times and are characterized by a constant demand that does not just disappear. Therefore, they are a great opportunity for protection against inflation or currency devaluation. Energy commodities such as oil are necessary for everyday life, but at the same time their price strongly depends on current geopolitical relations. Their prices can therefore be more volatile, and given the irreplaceability of these raw materials, this provides opportunities for profit.

There are several ways on can invest in commodities. The most traditional, but also more complex form of investment is the direct purchase of raw materials. However, keeping gold bars or barrels of oil at home is not the most attractive path for everyone, which is why other options have emerged, such as trading futures or CFDs or investing in commodity ETFs.

Purchase of physical commodities
In this case, we have full control over the commodity, but at the same time we have to ensure its storage. This form of investment is also understandably significantly more expensive.

Future contracts

One of the most popular forms of investing in commodities today. It is an agreement to buy or sell a certain commodity in a certain quantity at a predetermined price at a certain future date. They make it possible to trade a larger quantity of the commodity than we would be able to physically buy (leverage), which can bring bigger profits and losses.

CFD contracts

These are derivatives that allow investors to speculate on commodity price movements without having to own the commodity itself. Like futures, they use leverage and are therefore considered a riskier form of investment.

Stocks of mining companies

By buying shares of companies engaged in mining, processing or distribution of commodities, one can profit from their growth and development, which is often directly influenced by the current price of the given commodity.