In the futures world, the word contango is often treated like a four-letter obscenity. But when traders understand that it is simply a natural phenomenon that can be navigated, contango loses its negative connotation. Contango is defined as the process whereby near month futures are cheaper than those expiring further into the future, creating an upward sloping curve for future prices over time. It has been known to burn investors who are not aware of its presence, but staying one step ahead of the futures curve can lead to smarter, more efficient trades [for more commodity news and analysis subscribe to our free newsletter].
While equity markets have been on an absolute tear in 2013, many commodities have been hung out to dry. As investors have become more comfortable with stocks and a bit more risky in their portfolios, one asset class has been particularly pummelled: precious metals. It wasn’t long ago that analysts were calling for silver and gold to hit unprecedented highs (gold, in fact, did hit historic highs in 2011) only to watch their prices take a major hit in the subsequent months.
Investing in precious metals has become an extremely popular choice for equity investors looking to hedge their portfolios. Generally, this commodity class has gained the reputation as a “safe haven” holding during volatile market periods, but recently precious metals have flipped sides and saw a period of relatively high correlation to equities [see also 2013 Commodity Trades You Wish You Made].
The phrase “hindsight is always 20/20″ is most applicable to investors. There are numerous occasions when traders wish they would have followed their gut or executed a specific position, especially looking back on the gains that certain assets have made. It is relatively easy to make a bold call on a specific asset, but it is much more difficult to follow through with the trade and exit the position at the proper moment. With 2013 already being a wild year in the commodity world, we take a look back at some of the most fruitful trades throughout the industry thus far [for more commodity news and analysis subscribe to our free newsletter].
As the global economy continues to trudge forward, precious metals have taken quite a hit. Much ado has been made about gold prices making fresh lows and when the right time is to buy the yellow commodity, but its sister metal, silver, has been somewhat overshadowed, as it too has been faced with a fair amount of selling pressure. This year alone, silver prices have dipped over 11%, with a fair amount of that drop coming in just the last few days [for more silver news and analysis subscribe to our free newsletter].
Silver prices have long been known for their volatility, as the precious metal rarely has a quiet day. As such, investors typically keep a close eye on the commodity. Though silver started off the year with a bang, it has since retreated, and it is now down about 5% on the year. Meanwhile, the U.S. economy has been surging, with the Down Jones Industrial Average breaking record highs last week [for more silver news and analysis subscribe to our free newsletter].
Contango is a natural phenomenon in the world of commodity futures. Some view it as an evil that plagues the space, but in reality it is just another pattern that traders can profit from. Contango, simply put, is the process by which futures contracts get more expensive as the maturity dates get further out from spot. While this can hurt a long-term position, savvy traders can use this uphill curve to their advantage. Below, we outline several commodities exhibiting contango to help you make the best trading decisions for your portfolio [for more commodity news and analysis subscribe to our free newsletter].
In Ben Bernanke’s testimony on the Semiannual Monetary Policy Report before the Senate Banking Committee this week, the Fed Chairman signaled that the central bank would continue its stimulus policies, citing that the economic landscape still possesses several red flags. And while this may have quelled fears that the Fed would wind down or scale back its massive bond-buying program earlier-than-expected, investors still remain on edge [For more commodity news and analysis subscribe to our free newsletter].
Gold and silver have always been subject to claims that major institutions have been manipulating prices. In some cases, such price manipulation has even been proven, opening the door for further suspicion from investors around the world. It seems that as the years go on, more and more investors hop on board with these theories, with Eric Sprott, CEO of Sprott Asset Management, being one of the latest heavy-hitters to weigh in [for more precious metals news and analysis subscribe to our free newsletter].
Jim Rogers has never been shy about vocalizing his love of precious metals. Though he has some cautionary sentiment about short-term gold prices given their 12-year bull run, the legendary investor still remains optimistic about the long-term future of both silver and gold. Rogers feels that investors should be loading up on silver and gold coins right now as he notes that they have surged in popularity and that mints have been consistently selling out of silver coins because investors are worried about the future [for more gold and silver news and analysis subscribe to our free newsletter].