Commodities for Every Portfolio: How You Can Profit from the Long-Term Commodity Boom

Chapter 5

Participating Through Futures

The price of a commodity will never go to zero. When you invest in commodities futures, you're not buying a piece of paper that says you own an intangible piece of company that can go bankrupt.

—Jim Rogers

When it comes to participating in the commodity futures market, it is important to differentiate among the different commodity sectors as well as among the individual markets that make up those sectors. Up to this point, our discussion about the bull market in commodities has been more general. The premise was simply that we are in a long-term commodity boom, and the supply and demand constraints facing the various commodity markets will continue to push the price of commodities higher.

While this statement is true and to the point, it fails to address the reality that the overall commodity futures market is made up of various markets that do not necessarily move in the same direction. You cannot assume that just because we are in a commodity boom, a certain sector will appreciate during a specific time period. There will be times when certain commodity sectors lead while others lag.

This makes perfect sense. In the same way that different stock market sectors react differently in varying market conditions, the different commodity futures markets will appreciate during different times of this commodity bull market. Some of these factors might be interrelated in a broader sense, but they typically vary in how they impact specific commodity ...