Introduction To Commodities And Commodity Markets | Peter Sainsbury | Skillshare

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Introduction To Commodities And Commodity Markets

teacher avatar Peter Sainsbury, Commodities aficionado

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Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Lessons in This Class

11 Lessons (56m)
    • 1. Course Introduction

    • 2. Lesson 1. What Are Commodities?

    • 3. Lesson 2. What Factors Affect the Price of Commodities?

    • 4. Lesson 3. How Do Commodity Futures Markets Work?

    • 5. Lesson 4. Why Cycles Are So Important in Commodities

    • 6. Lesson 5. Metals: Focus on Gold

    • 7. Lesson 6. Energy: Focus on Oil

    • 8. Lesson 7. Agriculture: Focus on Soybeans

    • 9. Lesson 8. How to Invest in Commodity Markets

    • 10. Lesson 9. How You Can Use Technical and Positional Analysis to Your Advantage

    • 11. Lesson 10. Pitfalls to Watch Out for and Opportunities for Gaining an Edge

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About This Class

Do you want to invest in commodity markets but have no idea where to begin? In just ten short days, you will learn the key concepts behind one of the most exciting financial markets, the commodity market. By the end of the course, you will be able to make an informed view on the outlook for commodity prices and, in turn, have the confidence to affect that view through various financial instruments.

Course plan

Lesson 1. What Are Commodities?
Lesson 2. What Factors Affect the Price of Commodities?
Lesson 3. How Do Commodity Futures Markets Work?
Lesson 4. Why Cycles Are So Important in Commodities
Lesson 5. Metals: Focus on Gold
Lesson 6. Energy: Focus on Oil
Lesson 7. Agriculture: Focus on Soybeans
Lesson 8. How to Invest in Commodity Markets
Lesson 9. How You Can Use Technical and Positional Analysis to Your Advantage
Lesson 10. Pitfalls to Watch Out for and Opportunities for Gaining an Edge

Peter Sainsbury is the author of Commodities: 50 Things You Really Need to Know and Crude Forecasts: Predictions, Pundits, and Profits in the Commodity Casino. He writes his thoughts on commodity markets at Materials Risk.

Meet Your Teacher

Teacher Profile Image

Peter Sainsbury

Commodities aficionado


Hello, I'm Peter.

I've been passionate about commodity markets for over a decade both as an economist working in many of these markets and more recently as an investor and trader. 

As you will see from my course I prefer to look for opportunities where others don't. I feel safest on the fringe, learning from other people but never getting caught up in the hype.

I'm also the author of Crude Forecasts: Predictions, Pundits & Profits In The Commodity Casino, Commodities: 50 Things You Really Need To Know, The Winning Formula: Betting on F1 and Pay Attention: 101 Ways To Tame The Narrative Machine, Be A Smarter Media Consumer And Stop Outsourcing Your Thinking

Be sure to follow me on Twitter @PeterSainsbury7 and my updates on commodi... See full profile

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1. Course Introduction: welcome to this course its introduction to commodities on Corsi markets. Now the collision of technology, geopolitics and economics makes commodities of challenging but really exciting place to invest in trade. Now I try and help people recognize risks on opportunities in commodity markets. If you want to invest in commodity markets on really have no idea where to begin, this course could be for you to industry. In just 10 short videos, you will learn key concepts behind one of the exciting financial markets. Now it's a commodity market but ended this course you'd be able to make an informed view on the outlook for commodity prices. On, in turn, have the confidence to affect that. The free various. My natural instruments, a bit of himself. My name's Peter Sainsbury. I'm your for of commodities 50 things you really need to know on recently, but called crude forecasts, predictions, pundits and profits in the commodity casino on over your personal guide for free. This course, that's what further ado, I Let's dive into the first lesson 2. Lesson 1. What Are Commodities?: listen, what in this course on his lesson introduces commodities on basics of demand and supply. This course will lessen will provide the foundations for understanding the rest of the course. Now you re war commodities. There the building blocks of life rely on commodities to support daily existence copper and still to build our homes. Gas, coal to heat them, gasoline to fuel our cars as a truck. Tow work on wheat and corn for food, for example. Now there's consumers. We rarely purchase commodities directly. Rather, they typically the raw materials that person by manufacturing companies, and that they then refine them into the products. The goods that we we use on a daily basis free main types of commodities are energy. Whoa gas, coal, for example. Metals like copper, nickel gold, for example, on an agricultural commodities as well soybeans, corn sugar. Eso now against gonna focus on on demand. So the demand for a particular quality is closely connected to the demand for the product or service that the manufacturing company needed it for. The demand for steel in many other metals is strongly linked to demand for new vehicles on other manufacturing products. If you think when I when the economy goes into recession, when it really slows down or even contracts, then the demand for those metals may also go into decline, or at least not grab grow as fast as they have. Bean changes in price of a commodity also effect demand. If a commodity it Sina's as a necessity on increasing its price would only lead to a relatively small drop in demand. So I think of the gasoline used to fuel your car. The price might go up, but you still need to drive toe work for examples. A small increase in the price doesn't necessarily affect how you how you use your car. Changes in income will say important as well, so it is consumers. We typically more protein rich foods. This is our society's become wealthier on internist increases demand for crops such as soybeans to feed livestock. Increasingly, Nazis also seen is this financial assets as well. So Aaron demand for their own sake and nothing contrast other assets where you know Come on , see, you know things like equities, whereas the commodity provides no income stream. But some countries let go with many other precious metals, lots of seen as a store of value in times of uncertainty as well, so we're pretty fixed on demand. So what about supply? Not a supply of commodities also responds to incentives. High demand. Why prices typically encouraged farmers miners another commodity producers to respond by but also increasing supply things better. Minor is supplies quite sticky, So it it takes time for supplying to respond whether that's digging, dignity and mine planting crops. Waiting for a horse to Teoh be ready to take down on. That means that expectations matter a great deal. So if you think you're a farmer, hey, May he or she may not want to plant load lots of one type of crop in reaction to high prices and then only to see prices collapsed by the climate come to harvest. So thank you for taking the time to watch less in one of his course. In the next lesson, you'll get great understanding of the factors that affect, uh, commodity prices 3. Lesson 2. What Factors Affect the Price of Commodities?: welcome back to learn this lesson to. We'll look at what factors affect price of commodities. The previous lesson. You learn what commodities are some of the basic characteristics, so we're gonna looking looking to them in more detail in this finish. Last So one of the factors that affects commodities is income levels. Population, economies grow, industrialized and urbanized. Certificate continued increasing amounts of commodities, particularly things like industrial metals, like still, also for energy as well. However it has become, the economies become richer. You typically see smaller increases in commodity demand for a corresponding rise in income on the type of commodities completely changes well. So it was you get wealthier typically continuum or protein rich foods. I wish you'd turn increases demand for the livestock on the crops used to feed them costs on technology. Now the cost of producing the commodity plays a defining role, And so in determining commodity prices, production costs include things like raw materials, wages, research and development, insurance taxes and every other cost incurred by real world commodity businesses. Been longer term technology developments may result in greater yields. Uh, things like mines could be duck deeper, more resilient crops and that can actually reduce the marginal cost of production, the cost of producing the extra ton of wheat. The culprit, for example. The first factor we're gonna turn Teoh is government policy on the impact that producer organisations can have. So some government particulates from maybe autumn autocratic regimes book countries may look to subsidize commodity prices, particularly energy and agricultural commodities. Not really isn't in the idea of trying to provide benefit to that poor citizens or trains or curry favor. A swell on taxes also tend to be used by governments to try and control consumption, and here they're generally placed on the consumption of energy, particularly transport fuels. Now one reason governments used to justify taxes on fuel. This come for the free associating the environmental cost connection to start producer organisations on so some producers come together to coordinates cuts output collectively, and the aim tends to be so you push prices mostly they produced up to the level of which get much greater return but without too big an impact on demand that teamers drastically reduce the amount they can team or look for alternatives as well. On one of the most famous examples of that is the the Organization of Oil Exporting Countries are always known as a, uh the weather. Too much sun too dry to wet to or too cold unless the weather is just right. Agricultural yields will tend to suffer in the weather, can also affect other commodities to hurricane force winds in US Gulf enforced or oil producers to shut down. You got wells in deep, deep water on the can also affect things like missile production as well. So low water levels in Indonesia can make it more difficult from nickel minus two ship metal to market, I pressed one of the overriding factors that affect commodity prices. Are interest rates on the outlook for the U. S dollar? So think about it this way. Lower interest rates may result in businesses from consumers borrowing money to fund fund investment and consumption, which then ultimate leads to increasing demand for commodities. And since most globally traded commodities are priced in US dollars, changes in U. S. Interest rates are transmitted through through to its currency, appreciating with tighter monetary policy depreciating, a zit is loosened, and in doing so, demand for commodities is affected and it can Also, you should say that the U. S dollar can also affect the incentives of supplies in the markets where speculation we've touched on that earlier part of the course. But since commodities also and I said in their own right the amount of financial innovation that's happened over the past several decades, really. But more recently in the last 10 20 years, it means that really anyone you and I can take a state mistaking one or basket different commodities on and also relevant in Anchorage algorithmic trading. I mean, it's prices can swing on very subtle factors make me a macro related, but not necessarily related to the the fundamentals affecting on a individual commodity market. But it although they've added speculations about its liquidity into the market, there's concerns that they also being maybe moving prices away from levels that would be justified based on the underlying factors outlined in this in this lesson on now, all of these factors affect commodity prices, but they have a press outsized impact when, when stocks away so consumers don't have very many stocks, I don't produce level or government level. This could magnify the impact of any of any shock to the system. Okay, Thank you for taking the time to watch a lesson Two of this course. In the next lesson, you'll be taking a step by step through the workings. Global commodity futures contracts on in particular discover the vital role that speculators play. 4. Lesson 3. How Do Commodity Futures Markets Work?: again in the last lesson. You know about some of the major factors that affect the price of commodities. Today's like lesson looks at commodity markets in more in more detail and in particular, how commodity futures markets work. So a commodity speeches contract is a type of drifted contract in agreement, buy or sell a predetermined amount of a commodity specific period, a specific price on a specific date in the future. Now what polices can used commodity futures to secure a price for the commodity they produce? As you saw in that, someone farmer doesn't necessarily want to risk planting certain crop. Only see prices fall once it is ready to harvest. Now these futures contracts can enable farmers to secure price for his crop many months ahead of it being harvested. And there was these but buyers of commodities as well to reduce the risk that they and I explained to the price of an important commodity spiking higher. This could be a three manufacturers, for example. Finally, is he busy? So in the previous best, speculators can also buy and sell futures contracts based on have used whether where the price will be at some point in the future. The first futures exchange market was a rice exchange in Japan. It was established in about 17 30 to meet needs of the samurai there who were paid in rice , but they needed a stable conversion. Bet. Currency In the event of a bad of about home, the world's oldest commodity futures exchange with standardized futures contracts on the Chicago Board of Trade, CBOT on that began trip on offering contractor in 18 64. He's like weeks. Corn cattle on pigs were widely traded at a time, and one of things that's important to know about futures contracts is anything called the futures curve. Now, since futures contracts typically expire each month of the year, closest stated contracts tend to see largest trading volume Well, they stood around six months a year, or you will be on that Tennessee much, much less trading activity. Now the shape of this seriously futures contract was known as the futures curve, but current levels of supply in the market and expectations but the future as well. He just described as being in in contango when prices for future delivery higher in the nearest dated contracts. So in general trade is willing to pay a premium to avoid the costs associated with transporting, storing in ensuring. That's what's reflected in that the higher cost of a future future delivery. So when but when the slope of the futures price curve is downward sloping. So you're saying prices waited in six months time is lower than the current price. The markets said to be in backwardation, it's evaporation. It's a good sign that the underlying conditions commodity market are getting tighter if it's moving towards back related market. So the office there, that is where markets moving towards contango futures prices, future prices higher near term prices, the design of asked its mark. So getting noticed title say where but more supply into the market now what? What good are plastic tape speculators? No. Whenever once the prices increased sharply, speculators often get the blame. This can be especially sensitive. Winner is the price of agricultural commodities rising sharply? I expect places you we'd be in short supply prices rising in the future. Back those hunches by purchasing wheat futures contracts. But you gotta remember buying a week futures contract does no actually reduce the quantity of week that is available for consumption doesn't affect the ability to actually feed for people to be themselves. Many speculate to share the view that shortages will worsen on press school. Rise in the demand for these wheat futures contracts could be high. Consequently, the price of weak future delivery will also rises about. But it's then also provides the incentive for farmers to plant more weeks. I don't increase three deals that they get from their harvest in. This helps to say things demand any alleviate future shortages. So in in this way, you can think about expecting it is providing a much needed source of liquidity to both bite out business buyers and sellers in the market. Also, they also helped to post on risk from those that are unable, unwilling risk on today's that are looking to take home or risk. So I found this lesson on commodity futures contracts interesting. On the next lesson, you'll see why circles that's so important in commodities, whether it's so significant in trying to understand also profit from from commodity markets 5. Lesson 4. Why Cycles Are So Important in Commodities: they, um What? Mac? On the previous lesson, you learnt more about commodity futures markets and rolls back left to play. Today's look a lesson looks at the role that cycles, and it could be both short symbols of very, very long term cycles, the role that they play in course markets. Now, research examining centuries of commodity price data have tended to sketch a pattern of 15 20 year super cycles in a period of rising prices. Pull it by a slide in prices following 10 to 15 years. Ennis, when in excess investment leads to a flood of supplies. So how does the look this commodity supercycle working practice well, both demand and supply for commodities in elastic in the short term. So this means that it can take a long time for consumers and producers to react to pricing signals. Now me, the cure for high prices is why prices eventually so when oil prices spike, motorist car drivers on may have no choice but to continue to use the car to get to work. But eventually they may be able to invest in them all in a more efficient car. Meanwhile, commodity producers take time to invest on bring on new supplies, exploring for oil, but then eventually bringing crude on onto the market. Not given me the typical time horizon of a major mine could be as long as 20 to 30 years on a massive capital outlay. Rights of the star Very slow capital returns. The planning process is very risk averse, so once economic status wants a mine being brought into production can typically takes 7 to 10 years from the discovery of a new mining deposit. Frito Fruit production but lead time to come vary between between vessels. A cultural supply typically response much faster to change in underlying demand and the wife metals all or energy. But the cycle could be very different as well, so it could be as little as a year for grain section because corn wheat on soy upto 3 to 4 years for cocoa. But you know, things like forests supplying timber, it could be debt decades. This this time delay from bringing on new supplies on for demand to slay Kamina. Commodity prices continue to rise. There's a saying that the cure for high prices is why prices that's true, but eventually the price signal of done its work. Your reach peak prices will begin to decline. Now is the slope returns. Economic on commodity price conditions could be very, very different from when, and mine is eventually brought into production se if one or allow commodity producers reacted to earlier high prices in the same way. Then there would be a surgeon supply, but they will start production, perhaps at the same time. So in the event then of low commodity prices, producers may find it very difficult to stop production. Stop looking quickly, given the neech generate. A return on that investment, for this incentive may result in prices remaining life for long periods of time. Yeah, eventually they slept turns the man will start to rise commercially. Appreciates will become more disciplined. It takes a play off the market. This then sets the foundation for the next supercycle commodity prices next increase in prices. So really bull markets and commodities tend to end where it started. If there's anything I can take away from this lesson, is this really that demand and supplying will eventually react, too? Pricey price signals high prices provide an incentive to invest in new technology. They also But it was the right incentive to invest money in developing new supplies on encouraging seamers and manufacturers to also search for alternative materials over the long term. On research suggests that the expected long but real was having after inflation. I returned from commodities zero over the long run. No, the challenge on really the opportunity for investors is being able to identify where we are in that cycle. It's near the start of a sip. Supercycle invest, I will say, Be very clear about Went to take the money off the table when the signs of their that the market nearest speak. How did you find parents lesson on why what was so important to commodity markets? Interesting and useful? In the next lesson, we're gonna focus in more detail or one of the main metal markets. Now it's the metal band. The market for gold. Okay, Thank you for your time. 6. Lesson 5. Metals: Focus on Gold: so in yesterday's lesson, you know more about about the role that cycles playing in commodity markets on where they could be, so you score to investors. Today's lesson takes a more detailed look at one of the major commodities that's, that's the gold market. The gold is defined as a precious metal. It's rare, but you're naturally occurring. Mess with high value. Other precious metals you might have heard of include silver. I've also the platinum group metals as well. Although all of the precious metals have at least some practical uses from jewelry to industrial applications, gold really stands out from the others because it's it's demand is primarily driven by by investment on as a store of value. Now, gold is also a fee it commodity, one that really has a value as an asset onto the extent to which people believe that it has a za fear. 20 currency Gold's fan will be largely determined by its attractiveness relative to other currencies. The paper currencies issued by central banks. Gold is become most attractive when market participants are really most nervous about the future body of other currencies. On concern Imam investors tends to great when governments appear to be spending too much, increasing the size of that budget deficits. ONDO When central banks do you know do enough to contain rising prices, remember inflation, Of course. Extra raid the purchasing body of paper currencies before the introduction of fear Currencies. Precious metals on gold and gold, in particular. Weeds doesn't means means of exchange. Means of payment on the first use of gold in this way dates back to possibly 600 BC in present day Turkey. But more recently, the Breast and Breast Woods agreement established this system after World War Two, in which many countries fixed exchange rate relative to the U. S dollar. Central banks could exchange daughter the holdings into gold on an official exchange rate of about $35 per ounce. Gold on other precious metals can also be used. A za hedge against uncertainty. Gold prices spiked Teoh, but $850 back in 1980 this was off to the Soviet Union invaded Afghanistan, which also comes later with the Iranian hostage crisis that the U. S. Embassy in Tehran not right. Rice, too, the record peak of just shy of $2000 an ounce. In 2011 I came to several of the Arab spring revolutions our spring countries debt descended into civil war on. Also, Greece was brought to a standstill by a general strike that's people rallied against the eurozone's austerity demands. And more than any other commodity, gold seems to evolve a stream of fantastic tales of ever of imminent my natural or societal collapse. In some ways, every potential problem gets blown up into your into a coming apocalypse. Gold is often marketed through a combination of fear, but also dishonest Easter extent as well. So on end this lesson with a quote from a hedge fund manager, Poor Brosque, he said. Gold is intrinsically worthless, intrinsically priceless. Build a financial model to value it, but every input is just going to be your imagination for hip. He found this lesson on gold interesting role in place on a roll gold place in the financial system. In the next lesson, we focus in more detail on one of the other commodity markets on this is the market for oil . Thank you 7. Lesson 6. Energy: Focus on Oil: Okay, welcome back. So in yesterday's lesson, you know more about some of the properties of gold. How precious metal is used by investors to hedge against loss of person, parent in paper, currencies on, but also how it could be used as a hedge against various geopolitical events. Not today's lesson. Tech support. More detailed look, but one of the aid he had a major commodity markets, and that's the oil market. The oil oil is vital in in parent global economy, from power generation to transport on penalty used in industry as well. So since oil in its drift is so important to industrialized economies large and sharp increase in price probably the higher prices for my study products raising overall inflation and potentially also producing economic productivity as well. No, if you look back since the 19 seventies, almost every spike in the price of oil has been for a relatively quickly bye bye recession in the western world, different economies, sectors within the face, various types of exposure to oil prices, neste oil exporting countries, you think someone like Saudi Arabia, I tend to benefit from higher or oil prices while nets or were important countries so I think a country like India tend to lose out also within an economy. Very sectors do bad, but better always. Airlines and car manufacturers may be adversely affected by rising the cost of oil, but oil service companies they may benefit from a higher price. In an earlier lesson, we also we talked about OPEC, a type of producer of organization, but it's worth kind of exploring that they rolled in your market in more detail. So OPEC was set up in 1960 to coordinate opposition to cut in prices by by the big multinational oil companies. A pack is grape of countries, including some of the largest or produces in the world. So as of the middle of 2018 that members included Algeria, go to Congo, Equatorial Guinea, Gabon. Wrong on Iraq, Kuwait, Libya, Nigeria, Qatar, you a Saudi Arabia on Venezuela. But OPEC's overall objective is to achieve its high in oil prices possible satisfying interests of its members. But crucially, without snuffing out global demand for oil, uh, generally looks to manage the oil price for various formal or informal production Quatorze . For each individual member on these, these questions are really determined by an individual produces stated oil reserves. Now each member must be able to trust other OPEC members to be to stick to an agreement. But if they don't and if one producer starts producing more than their allocation, then that OPEC is a whole Patrice. More oil. Don't agree to pushed down oil prices. And so you make oil, or that members were self. Saudi Arabia is the largest producer enough. It has traditionally held the role of swing producer way tonight, and so a commodity supplier in this position tends to possess significant spare capacity ons able to just Kamasi supply that recipe. This whole additional cost, in order to help balance market and adjust prices, turned Teoh geopolitical impacted of oil. Given its importance and running of the modern global economy, nation states frequently battle for control of oil. Look back at a simple oil price chart dating back to 19 seventies, it reveals a series of bumps on each of these could be pinpointed toe war and conflict, whether it was the Iranian revolution, the Iraqi invasion of Kuwait or or the later US led invasion of Iraq, and more recently, Arab spring related uprisings in Libya and elsewhere. Results in escalated escalating geopolitical tensions across many important energy production on transit countries. Now industrialized countries have sought to protect themselves from from a sudden loss of supply by holding strategic reserves. One of the most well known strategic reserves is the US SPR or the U. S. Strategic Petroleum Reserve. And that's as far as we know. Yeah, a lot largest emergency supply of oil in the world on your energy forms, the backbone of modern industrial economies. On energy, resource is a critical export commodities for those who possess them. So as long as fossil fuels remain the dominant source of energy, oil supply on oil prices in particular will remain critically important. So I hope you find this lesson on roll the oil place in the modern global economy, where so strategically important, trying interesting. In the next lesson, we focus in more detail. One of the main agricultural markets at the market for soybeans 8. Lesson 7. Agriculture: Focus on Soybeans: okay, on a previous lesson, you know more about the vital role of the oil place in the modern economy. I'm on a global economy on ways so strategically important in today's lesson will take a detailed look at one of the other major commodities that's market soybeans. So demand for me is closely linked to a country's economic development. Richard Comey's generate consuming greater amounts of meat in their diets. Urbanization and rising incomes mean that more the world is conversion on European and American levels of meat consumption, which is approximately 100 kilograms a year per person, the moment most of Africa and South Asia eat less than 20 kilograms. With me. Yeah. Now, the most important global commodity for meat and livestock is his soybeans. Soy on produces beans which contain high levels of protein and oil on the harvested beans. The process to extract that oil, which is used primaries of the vegetable oil. It was the doors, food ingredients, but the high protein soymeal meal that's left over after you've extracted oil eyes mailliez for animal feed. Basically, cattle pigs also poetry as well on Theo n estimates that for every ton the soybean oil is produced. 4.5 tons soybean meal also produced Uh, soybeans are used for cooking, of course, but it is also used to produce bio diesel in America, not a bit. To reduce dependence on foreign oil, the US government introduced the renewable fuel standard in 2006 on that requires the fuel used in transportation to contain a minimum quantity of renewable, fueled by diesel growing crops. For three years, being has been controversial. Not only is it being blamed for pushing agricultural food prices higher, but environmental campaigners believe it's also accelerated things that happened, that loss and other problems as well. Uh, it's gonna move on to talk. Let me trade in soybeans. Soybean consultation cultivation is really quite concentrated in four countries. The U. S, Brazil, Argentina in China take of the book Soybean production. Historically at least, the US was by far the largest producer on exporter of soybeans, but have been significant expansion in Argentina and also in particular Brazil. Thanks to abundant land, high soybean protein levels in better infrastructure, the Chinese soybean market is really Brazil's to lose. Brazil's cultural exports to China played a critical role in constructing trade ties between both countries over the last decade of say, on about the biggest boom to Brazil. Soybean produces has bean. The trade speed between US and China on this developed represents Brazilian soybean produces with a significant advantage over their U. S. Counterparts being up to access the Chinese market. The earnest letting on the soybean market interesting in excess in we've been focused on Moorhouse how to trade or invest in in the commodity markets. 9. Lesson 8. How to Invest in Commodity Markets: Welcome back on yesterday's lesson. You know more about the market for soybeans on where their life to become increasingly important as emerging economies adopt more more Western style high protein diets. Today's lesson. Instantly, Every we've learned past seven lessons, we'll show you the basics of how you can trade or invest in commodity markets Now. Historically, many people start to hold a commodity in physical form. Writer is an investment or score value, not a commodity that is traditionally held. Its role has been gold, but also other precious metals like like silver. Now, holding a commodity in a physical form has its downsides, its security namely but also the lack of a ready market to sell it in in the event that you want your money back quickly. Nowadays, the purchase of precious metals tends to be on deposit at a bank, for example, so you store on so they can store on your behalf for a fee, of course. So what's feasible for a private investor to be able to buy and hold precious metal? It's a lot more difficult. Teoh purchase a barrel of crude oil, for example, or a ton of soybeans on Dennis's where financial innovation that we talked about earlier comes in. Products based on the underlying physical futures market could really help individual investors gain some exposure to these to these markets. Futures based exchange traded products use futures contracts that we talked about during this course. It's provide exposure, but without any actual physical holdings on. But you need to be aware that the return you may not make it may not be the same as usual spot price. So when near term prices are higher than futures ones, remember we talked about backwardation and investors in court see features. We'll gain when the positions of rolled over when contracts expire. Going throughout the futures when the market is tango, Andi prices and future higher the near a dated prices. Your return as investor will be a radio to some to some degree as well. That's important point to bear in mind, and so you can also invest directly in companies involved with energy, mining or agricultural weight. Or that's really another way of gaining exposure to one or a basket of different commodities. But again, you need to know that the B equity prices of commodities priests is no always correlated with the price of the underlying commodity. They may be able long term, but not always over short periods of time. If you've got in fact is like capital expenditure, government policies, whether these companies were operating in the ability of the management. Um, actually, other factors. Unforeseen operational issues. Miners strike, for example, on also in general appetite among investors for equities. You can also affect the share price of that of that commodity producer you can also bet against. Come on, see prices to combat the price is gonna go go down on one of the come vehicles. Deacon used to achieve this contracts for differences, but also spread betting as well. They offer a way for investors to bet on the direction of a particular commodity both up also down as well. Andi also enable speculators to place the position using leverage. You need to put down a fraction of the capital of the capital, but you have to bear in mind that there are serious risks risks involved with these kind of leveraged products, because the contract is two way just a spread on that the provider of spread betting service or contracts for difference we'll pay. If you call the commodity price movement correctly, you will also have to pay out if you get it wrong. Justice, leverage. Magnify your profits. Income also magnify losses as well. So I found this a lesson. Interesting house. Invest in commodity markets. Um, we will move on to some of the pitfalls to watch out for both emotional on market related later on in the course. Up until now, we fixed on the fundamentals of the commodity markets, but in the next lesson will focus on how you can use your tactical and positional analysis to your advantage. 10. Lesson 9. How You Can Use Technical and Positional Analysis to Your Advantage: go back on. Yes, Today's lesson. You know more about some of the main ways that you can. I invest in commodities or speculate on future private placement price movements up and down. Eso In this lesson, we're gonna look at what what's really important to be aware of the objectives of all market participants in commodity markets. I'm were using methods like technical positioning Analysis. Off can offer some very good insights into who's doing war and really, what happens when you're eating much of it on Really, then how it relates to other factors, like prices on the fundamentals that we've talked about this course. So it started you things like technical analysis on this lesson. We're not going to too much detail, but it's provide a Navy view. What, What can be useful? Um, that can involve Yeah, I wasn't past price patterns. Trends on volume in order to try and determine future price movements on some of the most popular indicators for commodity trading for under the category of momentum indicators, it was fully trusted adage buy low so high, and these indicate caters could be further split into, or Slater's trend falling in two cases now traders, firstly to identify the price characteristics of the market, is trending or arranging before applying any of these indicators. And this is important because some of the indicators any work well in incessant types of market characteristics. I'm one of the simplest and most widely used indicators in technical analysis is moving average, which could be the average price of a commodity over a specific period of time, so that the 200 day moving average will be the average closing prices over the last 200 days. Including the current period, half the price crosses over that 200 day moving average, perhaps combined with an increase in trading volume. Combined with other factors that may support higher prices, then this may be suggestive of a sustained move in the same direction that's gonna turn Teoh positional analysis. Now. This really involves understanding the actions of speculators, physical market participants. Now The Commitment of traders report is issued by the U S. Commodity Futures Trading Commission every Friday. I never caused the actions of participants in commodity futures markets and breaks down their their activity in four categories, depending on their role in the market, the most important category is the managed money category, and this includes hedge funds, also your pension funds, commodity trading advisors and in any other organization that managing or conducting futures trading on behalf of clients, no money much is have to close out their positions of some point. It's when you see a very large short position besting against prices. Get down. That means, very simply, that they're gonna have to close up that petition out at some point. And then if you see that in the context of a very low like price, suggesting that money managers have made money building up that short position on impressive fall in, that could be very interesting buying opportunity. There is then a high risk that the prices to be higher is a function of short covering specialises buying back futures country previously sold in order to lock in a profit, orman or minimize losses. Now a blend of different approaches is essential. And with information being much more accessible to all of us, a more balanced exposure to different ways unless and come on commodity markets, it's really sensible. The challenge lies in knowing when he needs look fundamentals. When technical analysis is important. And when the slightly more esoteric things like sense mint behavioral patterns on positioning can also when delay come into play as well. So I hope you found this lesson on technical on positional. Another center analysis. Interesting. In the next lesson, we'll focus on the pitfalls that you need to watch out for. 11. Lesson 10. Pitfalls to Watch Out for and Opportunities for Gaining an Edge: again on yesterday's lesson. You know more about the benefits of blending both of technical positional analysis, with all we've learned earlier is course about fundamentals of commodity demand and supply for today's lesson aims toe highlight The potential pitfalls watch out for is you continue your journey through free commodity markets. The one thing to be aware of his new avoid newsletters, or at least be aware of their incentives. The investment newsletters taps that touting the fortunes of junior mining companies tend to be written by people who people who want to sell newsletters. When something is hopes, that's where they're going to write about. That's what I'm going to try. And so we have to ask yourself, What's that based on on in the Main? You should be very suspicious of this from sell side research. Second factor wanted people want to draw your attention is avoid reacting commodity price forecasts so every so often an investment bank fund manager or into some pundit make a big song and dance about their latest forecast for commodity prices. You really disagree? Trick these predictions. There's friend entertainment purposes only. Do no make them the basis of your your investment strategy. My end a recession toe portal Press prediction says trays there typically wrong by by almost 30 even when looking out to six months on your forecast is a very bad it supporting turning points on price cycle. Uh, and remember, yeah, commodity price forecasts. Are Ripa Regis marketing material for other services there? No, really. Their toe help you guide your investment strategy except I want to draw to your attention is to really do you do your own research? One of the best ways to really understand markets is to do your own research essentially on . This doesn't need to be an exhaustive study on Do do worse than picking up a long term chart for a particular commodity on looking for you for the biggest spike possible slump in the market. And then ask yourself, You know what will happen that, um what what today's in them In the market known at the time, there's the risk of a dramatic change in price was leaving extractor next pit for on his resource. Focus on where where you could gain an edge. So instead of attempting Teoh second guess the future direction of economies and markets you devote yourself to specialize research in niche markets. These are the city an efficient markets in which it is impossible, which it is possible to gain knowledge advantage. You're free to spend time and effort researching it on in the world of commodities here, this might include your energy metals like like lithium couple or uranium, their TV hidden from view to the casual observer. But the evidence is that if you catch a look next, factories take a long term view. Griffin in algorithmic trading commodity markets means that at least in the short term, the price of a commodity may not necessarily reflect what's happening in the underlying front fundamentals, and you just you should see this is an advantage for investors willing and able to take a longer term view. Eventually, markets will you reflect that the underlying fundamentals. It's just the timing. That's for with uncertainty. But you can use that to your advantage on what working I want to recommend is Beauty's a decision journal to avoid in various behavioral biases that can affect your decision making on this can be used to record your justification for a particular trade or investment. Your faults on the likelihood of it occurring and how that compares with current value. Crucially, though, you needs outline. At what point you know that your your investment BC's pieces is gonna be wrong on and try and get out of that position. I would try and hedge what went where, Where, where, Um, this trade is gonna get room. You should do these things before you place a trade before you place that investment. This is waiting almost you most rational when you got your almost analytical. So as we finish up our introduction to commodities and commodity markets like thank you for staying on this course for the last 10 10 lessons on, I look forward to any comments or force you had on this time. It's a place. Leave a roof review review that they really do make a difference. If you have any questions, would like additional information, please reach out to me on Twitter at Pizza Saints. 37 You cannot say it's described. Teoh Kumasi Market Update. Somewhere block. That's materials risk on. If you'd like to learn, Mawr would encourage you to also check out my books. Commodities 50 things really tonight. How else accrued forecasts Predictions Pundits on profits commodity casino So I thank you for your time. I wish you good luck.