Complete Guide: How to Invest in Commodities and Capitalize on the Global Market

The Commodity Boom: Investment Opportunities in 2023

Commodities are the backbone of international trade. These essential natural resources—ranging from oil to copper, grains, and precious metals—fuel global industrial production and present significant opportunities for investors.

According to IMF data, the overall commodity price index experienced explosive growth of over 100% between 2020 and 2022, primarily driven by energy (oil and gas). This phenomenon reflects a reality: investing in commodities is not just speculation but a strategy recognized by governments, large corporations, and institutional investors.

Investment Avenues: Beyond Physical Purchase

Historically, investing in commodities involved physically acquiring gold or silver bars. However, this approach is impractical for most modern investors.

Today, multiple financial investment channels allow exposure to these markets without owning the physical asset:

Producer company stocks - Participate in the appreciation of mining and energy corporations

Futures contracts - Standardized agreements to buy or sell at a fixed price on a specified date

Exchange-Traded Funds (ETFs) - Instruments that group multiple commodities into a diversified portfolio

Options - Derivatives granting the right to buy or sell at a predetermined price

Contracts for Difference (CFDs) - Agreements between operator and broker to speculate on price movements

Classification of Commodities: Key Sectors

Energy: The Dominant Sector (75% of Production)

Crude oil - The most traded commodity globally, with prices influenced by economic growth, geopolitical conflicts, and decisions by producer cartels like OPEC.

In June 2022, it reached nearly $130 per barrel after the invasion of Ukraine, though it later corrected more than 40% due to fears of a global recession.

Natural gas - Vulnerable to geopolitical events and European winters. In August 2022, it hit peaks of $10, dropping 80% when Europe experienced warmer-than-expected temperatures.

Coal - Fossil energy in gradual decline, replaced by cleaner sources, but still in demand for heating and heavy industry.

$2 Metals: Divide Between Precious and Industrial

Gold and silver - Safe-haven assets against inflation and volatility. Central banks hold them as reserves. Their prices respond to monetary policies, inflation, and currency stability.

Copper - A barometer of global economic health. Demand linked to construction, manufacturing, and technological trends. Its annual volume on the London Metal Exchange ###LME( exceeds 3 billion tons, equivalent to )trillions in annual transactions.

Aluminum - Critical for aerospace, automotive, and aerospace industries. Its prices are heavily dependent on energy costs of production.

$15 Agriculture: Soft Products and Grains

Coffee, sugar, cocoa, soy, wheat, rice, and corn are traded globally. Their prices fluctuate according to economic cycles, energy costs, and weather events ###droughts, floods(. Soy and corn lead trading volumes.

) Livestock: Less Explored Niche

Lean pork and live cattle are traded on the Chicago Mercantile Exchange ###CME(, measured in pounds or metric tons.

Market Outlook 2022-2023: Price Divergence

The World Bank documented a divergent strategy after the Ukraine war: energy prices at record highs while non-energy commodities )agriculture, metals( experienced a 13% decline.

Specifically:

• Metals fell due to economic slowdown and aggressive interest rate hikes
• Agricultural commodities dropped 11% in Q3 2022 when Ukraine resumed exports, easing fears of food shortages
• Energy prices contracted more than expected amid recession concerns

World Bank projections for 2023-2024 indicated a general decline in commodity prices.

Bullish Outlook: The Alternative Scenario

Conversely, analysts like Jeffrey Currie of Goldman Sachs projected a 43% increase over the next 12 months, arguing:

Pause in rate hike cycle - The Fed may slow interest rate increases, boosting demand

China reopening - Ending anti-COVID restrictions would trigger explosive demand for oil and industrial metals

European recovery - Economic stabilization would increase raw material consumption

Minimal inventories - Reduced productive capacity due to lack of investments would create relative shortages

The Baltic Dry Index )BDI(, which monitors maritime freight rates, showed a slight recovery after declines since October 2021, potentially signaling increased global trade demand.

Energy Company Stocks: Historical Returns

Another effective strategy is investing in commodities through stocks of integrated oil and gas corporations:

ExxonMobil )XOM.US( - Nearly 300% appreciation since 2020, highly correlated with hydrocarbon prices but not in a 1:1 ratio

Chevron )CVX.US( - Multinational exploration and production company with over 260% post-pandemic performance

Naturgy )GASNY.US( - Spanish multi-utility company )gas and electricity( with a 38.7% increase over the last 5 years

Shell )SHEL.US( - 200% jump between November 2020 and today, traded on the London Stock Exchange

Repsol )0NOG.IL( - Iberian supplier with more modest performance: 6.05% appreciation over 5 years

All suffered severe pandemic declines but subsequent recovery has been notable, especially Exxon and Chevron. An advantage: many pay dividends multiple times a year in addition to capital appreciation.

Financial Instruments: Trading Mechanics

Organized trading of commodities occurs on specialized exchanges: CME )Chicago(, NYMEX )New York(, TOCOM )Tokyo(, and LME )London(, where spot )immediate delivery( and futures )settlement at a future date( are executed.

) Futures Contracts Explained

A futures contract is a legally binding agreement where two parties negotiate a specific volume of merchandise at a fixed price based on supply and demand at a future date. The futures exchange standardizes specifications and guarantees compliance.

CME Group encompasses the main U.S. markets ###CME, NYMEX, CBOT, COMEX( and is the largest platform in the world for speculation on price movements of physical and financial instruments.

) Exchange-Traded Funds ###ETFs(: Accessible Diversification

Commodity ETFs trade like stocks on exchanges, allowing easy buying and selling with high liquidity. Notable examples:

Invesco DB Commodity )DBC.US( and Invesco Optimum )PDBC.US( - Funds with $8 billion in combined assets, replicating a basket of the most traded 14 commodities

United States Oil Fund - Specializes in U.S. WTI futures

Invesco DB Base Metals Fund and SPDR S&P Metals & Mining ETF - Track mining companies and metals industries )precious and industrial(

) Contracts for Difference ###CFD(: Leverage and Flexibility

A CFD is an agreement between broker and investor to pay the difference in price of an underlying asset over a specified period. Main advantages:

• Gain exposure without owning the physical commodity
• Use leverage to multiply gains )y losses(
• Short to profit from declining markets

Profitability: Is Investing in Commodities Worth It?

The answer depends on the investor’s profile:

Conservative investor - A diversified commodity ETF acts as a hedge against long-term inflation. When currencies depreciate, food and raw materials become more expensive, allowing protection of real capital purchasing power.

Active investor - Futures contracts and CFDs enable intraday trading and scalping for short-term gains. Volatility offers frequent opportunities but requires disciplined risk management.

The variety of investment vehicles in commodities allows different participants to enter according to their risk tolerance. However, volatility produces both significant gains and losses, so every operation should be carefully evaluated with proper professional advice to operate safely in these dynamic markets.