Natural gas continues to be one of the most frustrating commodities for 2012. After seeing prices hit new lows by the day, a number of investors speculated that its price could not possibly get any worse; they were wrong. NG futures are still struggling to establish a healthy trend as prices have dropped more than 17% on the year with over 8% of that coming in the trailing five day period. Low prices can be attributed mainly to this year’s winter, or lack thereof. The winter of 2011-2012 is on pace to be the mildest winter on record, as warmer than average temperatures have slashed demand for gas-powered utilities. This led to high stockpiles which, in turn, slaughtered prices to their current levels [see also 25 Ways To Invest In Natural Gas].
With natural gas prices sinking to historical lows and crude oil futures whip-lashing amidst the ongoing geopolitical tensions in the Middle East, many are turning to alternative energy investments in search of lucrative returns [see 25 Ways To Invest In Alternative Energy]. Solar energy in particular, which is often times associated with rampant volatility, has actually caught the attention of many investors in 2012 thanks to impressive performances out of this corner of the market.
Commodity futures are known to exhibit a fair amount of volatility, but there is perhaps no group of assets more volatile than the softs. Soft commodities, which consist of cocoa, coffee, cotton, and sugar, are known for their large daily movements, as it is not uncommon to watch these contracts jump by 3% in a single trading session. As such, they make for extremely lucrative trading opportunities, despite their high risks. So it comes as no surprise that a number of investors actively trade these four commodities in hopes of turning big gains. It is also important to note that all four of these have very different price drivers, so while an asset like cotton has enjoyed a strong 2012, coffee has done just the opposite [see also Five Commodity MLPs With Sky High Yields].
Income investors groaned at the news of the Fed’s recent decision to hold rates in their near-zero rate rut until late 2014. That could mean nearly three years until we see an uptick in interest rates which points to three years of scrapping for steady income around markets as interest rates of 0.25% are less than enticing for most investors. But for those who live and die by dividend yields, there are still a number of options available, especially in the commodity space. Investing on the equity side of commodities can offer low correlation (though not nearly as low as the direct commodity itself) while providing a handsome income stream [see also 12 High-Yielding Commodities For 2012].
The back and forth markets that ensued over the past week made it difficult for commodities to find their footing, as a number of big name assets lost ground over the trailing five days. Among the biggest losers were cotton and cocoa, as the soft commodities are known for their inability to handle volatile markets. Gold was also a loser, though not as severe, which may create an interesting buying opportunity for traders and investors who have a soft spot for this hard asset. As for the week’s winners, lumber and brent crude oil were able to post meager gains, but it was a slow week for the overall commodity space. In an effort to keep investors up to date in today’s fast-paced commodity world, we outline three of the best stories from around the web this past week [see also The Ten Commandments of Commodity Investing]: