Contango is the process by which near month futures are cheaper than those expiring further into the future, creating an upward sloping curve for future prices over time. It usually stems from the cost of storing commodities prior to their sale, though a futures curve can also reflect market expectations of where a commodity is heading. Though contango often comes handcuffed to negative connotations, it typically is not a problem for traders and investors who are aware of it [for more commodity news and analysis subscribe to our free newsletter].
As we kick off the New Year, commodity investors are hoping that 2014 brings more favorable returns than its predecessor. Last year was largely marked by dwindling commodity returns with a number of hard assets wreaking havoc on investors and traders across the board. Gearing up for 2014, we take a look at some of the biggest commodities currently contangoed to help you get prepared for the new year [for more commodity news and analysis subscribe to our free newsletter].
Peter Schiff, CEO and Chief Global Strategist of Euro Pacific Capital, has long been a major presence in the precious metals industry. We had the chance to sit down with Peter to discuss silver, gold and his new fund that debuted earlier this year.
An event several years in the making could be just days away. For some time now, the Fed has been debating whether or not it should limit big banks and their participation in the commodities markets. The debate stemmed from a number of accusations of market manipulation for profit, though most of the institutions on the chopping block have maintained their innocence. The decision is expected to fall sometime in the next month and could be a welcomed change for traders [for more commodity news and analysis subscribe to our free newsletter].
With the first half of 2013 coming to an end, many investors are taking time to look back and see which portions of their portfolios will need revaluation, with many now worried that the commodity super cycle is drawing to a close. Though some commodities fared well in the first six month of the year, many failed to keep pace. Below, we outline the three worst performing commodities so far in 2013 to give investors a better idea of how the year is shaping up [for more commodity news and analysis subscribe to our free newsletter].
As the decade opened, precious metals (namely gold) were among the most popular commodities for long-term investors. Many had grown comfortable with the commodities as safe haven assets that would help to protect their portfolios from inflation and any unforeseen market dips. But Ben Bernanke may have let the air out of the precious metals world when he announced that the Fed would begin tapering its bond purchasing late this year or in early 2014 [for more precious metals news and analysis subscribe to our free newsletter].
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].