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Commodity tips Blog : Invest in Commodity Market
Investing in Commodities?
Investing in commodities is almost very common these days. Many investors and traders focuses on only commodity market as there is much more profit here. Investors daily visit Commodity Tips Blog and make decisions i.e in which commodity to invest? Either in commodity futures or commodity intraday. Commodity investing was initially received well only by a few sectors. Commodities investing were first restricted to the trade and exchange of commodities meant for regular and day to day use. However the awareness in the subsequent stages has brought all sectors into the manifold of commodity investing and has enabled speedy movements, transfer and transaction of goods and services. The following are the benefits of investing in commodities market:
Commodity market is getting hit from all sides
There is a perception that the ban on futures trading in some agri commodities may lead to a flight of business to overseas exchanges and encourage “dabba” trading. What do you think?
To an extent, illegal trading exists. But I don’t see a large-scale movement to overseas exchanges because the majority of the participants in this market (futures) now are retail investors. A few corporates that are hedging in futures will now find grounds to go abroad. And, for them, it will be difficult to get back to normal trading. For instance, two years ago, the jute commissioner put a price restriction on jute and the market collapsed. Later, when the jute contracts got deactivated because of price controls, futures market got cut off. The price ceiling was unfair to farmers, and the jute contract has not been taking off since then. The same thing can happen to these commodities (where the ban is on now).
What not to be done while investing in commodity market :-
Next time, do not do the following:
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Outlaw the private ownership of gold. Franklin Roosevelt came up with this doozy in 1933. Angry at how the public keeps vetoing your monetary policy? Conduct monetary policy well instead of criminalizing hedges against it.
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Overprint the currency and then not raise the official conversion price of gold. Big mistake of the teens and ’20s. When the market price of gold goes up because you’ve printed too much money, people naturally will redeem at the conversion price and sell privately. In fact, they’ll raid their bank and brokerage accounts to do so. Witness the crash of 1929-1933.
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The Twist. In the early 1960s, as the U.S. watched gold flee from the country on account of 91% tax rates, it tried to lure people back into dollars by making short-term bank accounts pay more than long-term loans. A “twist” in interest rates that was pure gamesmanship.
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Goad vacationers into staying home. A Lyndon Johnson specialty from 1968. Alarmed that people responded to his suggestion of an income-tax surcharge with redemption into gold, LBJ asked the American people to delay vacations to Europe, where dollars would be put into the hands of his prime skeptics.
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Fool with Roosa bonds. In the 1960s, as the U.S. was getting its tax and monetary policy wrong, people dumped dollars for gold and expected the U.S. to stop the process by raising the conversion price. Administration staffer Robert Roosa designed a bond that would pay off if the U.S. devalued the dollar. Reality check: if you want people to believe there’s no reason for devaluation, make sure there’s no reason for devaluation.
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Establish a gold pool. In the same period, the U.S. was annoyed that foreigners were giving a raspberry to U.S. monetary policy by buying gold. So in conjunction with Britain, the U.S. tried to fix the price. The duo put a stash of gold together and would sell into strength anytime gold rose on the private markets. A fudge through and through.
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War on imports. In 1971, Richard Nixon put a 10% surcharge on imports because they imply dollars leaving the country and possibly ending up somewhere to be exchanged for gold. Get fiscal and monetary policy right, and you can relax about imports.
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Think exports a panacea. President Obama used to be heard saying this sort of thing. In the ’60s, LBJ spent $500 million trying to drum up phantom export opportunities for U.S. corporations, on the grounds that these would soak up foreign currency and thus diminish the demand for gold. The stock market reacted by selling off.
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Force your allies into buying arms from you; and your soldiers overseas into spending pay on base; as the U.S. did in the 1960s. Wouldn’t want any dollars “unprotected” by U.S. sovereignty outlawing the private ownership of gold. Risible.
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Think your foreign exchange is “as good as gold.” The flaw in Bretton Woods. With world monetary gold spread around the globe as it is today, reserves that are good as gold can be confined to gold itself.
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