Teach a parrot the terms “supply and demand” and you've got an economist.
With the price of oil tripling in value since 2001, gold prices reaching a 26-year high, and a slew of other commodities rising to their highest levels ever, it is not surprising that commodities have become a hot topic of conversation. Even the financial media coverage of commodities has picked up steadily over the last few years. In the past, it was difficult to find stories on the commodity markets. Today you need only to pick up a copy of The Wall Street Journal or turn on CNBC to learn about a commodity-related topic. Quite honestly, even the fact that you are reading this book is a testament to the growing interest in the commodity markets.
Yet despite this increased coverage and substantial appreciation, few investors have participated in the gains that these markets have offered over the past several years. The reasons for the lack of participation vary. Some people have readily bought into the fallacy that this is a commodity bubble, while others have simply overlooked this bull market for other investments. At the center of all these reasons is the simple truth that many investors do not understand how the commodity markets work, why commodity prices have escalated over the last several years, and what the advantages are of holding commodities in investment portfolios.
This chapter seeks to establish ...