Commodities have obvious appeal to active investors looking to generate profits from short-term price movements [but while] the volatility of this asset class is ideal for risk-tolerant individuals who actively monitor their positions…commodities may also have appeal to the long-term, buy-and-hold crowd…These potentially appealing attributes come with plenty of risk, [however, as] the path to commodity exposure is full of potential obstacles and pitfalls that can erode returns and lead to a less-than-optimal investing experience. Here are ten rules of thumb that will help you achieve a more successful experience investing in commodity markets.

So says Michael Johnston (www.commodityhq.com) in edited excerpts from his original article*.

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Johnston goes on to say, in part:

Investor interest in commodities has surged in recent years, the result of both a prolonged rally in natural resource prices and the development of new vehicles that facilitate access to this asset class. Specifically, the launch of a robust lineup of exchange-traded products (ETPs) that utilize both physical commodities and commodity futures contracts has brought commodities to the masses; they’re no longer reserved for the largest and most sophisticated investors.

Here are the ten rules:

1. Recognize That ETNs Do NOT Usually Mirror Spot Prices

Perhaps the most common–and most dangerous–misconception about commodity ETFs and ETNs is that these products offer investors exposure to the spot prices of the underlying commodities.

While some physically-backed precious metals ETFs such as IAU and SLV do hold physical bullion, the vast majority of commodity exchange traded products on the market achieve the targeted exposure through the use of futures contracts. That is very important to note, because it means that the returns generated will ultimately depend on three factors:

• Changes in spot price of the commodity
• Slope of the futures curve
• Interest earned on uninvested cash

It’s not uncommon for the second point on the list [above] to be the driving force, and the reason why returns on commodity ETPs can deviate significantly from a hypothetical investment in the spot commodity.

2. Consider ETPs That Avoid Contango

For an investor who solely invests in futures contracts, contango [that is, when the futures price is above the expected future spot price the price will decline to the spot price before the delivery date] may not be as big of an issue but given the fact that commodity ETPs have soared in assets in recent years, there are a large…[number] of people who rely on these products for their commodity exposure, and it is highly likely that a number of them have been burned by contango.

A futures-based ETP follows a strict process which, when combined with contango, slowly but surely destroys a position. When futures are contangoed, this forces the particular fund to sell the contract low, and buy the next contract for a higher price, erasing value with the blink of an eye. When this process is dragged out over several months, these funds have a nasty habit of producing some rough returns.

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To keep away from such a common anomaly use first-generation futures funds, like UNG and USO, as trading instruments. Their automated roll process will always fall prey to a contangoed environment, and therefore it is not often wise to establish a long term position in such a fund. Instead investors should measure their holding periods of these products in days and hours, rather than weeks and months, to help avoid the pitfalls of the auto-roll.

For those who are uncomfortable with actively trading a fund, there are now a wide variety of ETPs that are focused on eliminating contango. These next-generation products will often hold several futures contracts at once and their roll process does not always involve buying the next month’s contract, but rather one that matures further into the future. 

The most popular kind of commodity ETP is a first generation futures fund; one that simply invests in front-month futures and features an automated roll process…When an ETP’s contract is about to reach maturity, the fund executes an automated roll process so as to avoid delivery.

A quick glance at the index description of a futures-based fund will tell you if it is utilizing the dangerous front-month strategy, or if it is using alternative means to avoid contango. Also note that investors can use physically-backed products to avoid this issue, though that space is generally limited to precious metals…

3. Recognize the Difference Between Commodity ETFs and ETNs

Most investors are aware that there are distinctions between ETFs and ETNs; ETFs hold a basket of underlying securities and may experience tracking error, while ETNs are debt securities that will expose investors to the credit risk of the issuing institution…

Most investors tend to gloss over the differences between these two product types, since they generally function in almost identical fashion. When it comes to accessing commodities, however, the differences between these two product structures can be significant. For starters, tracking error can become a big issue with products that regularly “roll” futures contracts to avoid taking physical possession; ETFs that are continuously buying and selling futures contracts are likely to deviate slightly from their target index. ETNs don’t have that concern, since there are no underlying holdings; the value of these securities simply moves along with the index.

It should be noted that ETNs can also avoid the fees that come along with rolling futures contracts and implementing a futures-based investment strategy. ETFs incur costs in the form of brokerage commissions whenever they sell or buy futures contracts; ETNs simply calculate the change in value of the underlying index, and the value of the note adjusts accordingly…

Basically, it is worth doing your homework into the various structures at your disposal for accessing commodities; the choice you make can have a potentially significant impact on your credit risk, tax liabilities, and tracking error. Most investors look at ETNs with skepticism, wary of the credit risk contained. That risk component certainly shouldn’t be ignored completely, but it is worth noting that there are some appealing attributes of the ETN structure as well.

4. Recognize the Difference in Commodity ETF and ETN Tax Obligations

The difference between a commodity ETF and a commodity ETN can translate into sizable discrepancies in tax obligations. Most commodity ETPs that actually hold futures contracts–meaning the non-ETN segment of the universe–are structured as partnerships for tax purposes. That means that these securities are taxed at a blended rate between short-term and long-term capital gains (the 60/40 split results in an effective rate of about 23%). Moreover, these securities incur a tax liability annually regardless of whether shares were sold…[and] require [financial] advisors to fill out a K-1, which can be an administrative headache to some.

Compare all of [the above] to the simplicity of commodity ETNs, which are generally only taxed upon sale at the applicable short-term or long-term rates. Moreover, commodity ETNs are reported of a form 1099; there’s no K-1 to deal with on these products.

[Also]…keep in mind that physically-backed precious metals ETFs, such as the ultra-popular GLD and IAU, are subject to being taxes as collectibles.

5. Avoid an Energy-heavy Portfolio

When it comes to commodity investing, many investors commit the sin of energy bias, whereby the majority of their commodity holdings fall under the umbrella of an asset like crude oil or natural gas. To be fair, energy products are among the most popular in the commodity world, but exhibiting a bias towards these investments can have some adverse effects on your portfolio.

Energy products are quite often highly correlated to the movement of general markets, meaning that they will move closely in line with something like the S&P 500. One of the main reasons that commodity exposure is essential to a portfolio is the low correlation and diversification benefits that these investments offer. An energy-heavy portfolio will likely only steepen your losses on bad days which may not be enough to be erased by days in the black.

Energy investments are obviously very important, as the majority of these commodities offer relatively inelastic demand because we cannot survive without them in our daily lives, but with these futures and products being particularly volatile, committing a bias may only hurt you in the long run. Instead, it is important to remember to keep vital energy holdings in check with other commodities like precious metals or softs. This way, a portfolio will still reap all of the benefits offered from energy, but will also gain the diversity of commodities tied to vastly different price drivers that offer sometimes zero correlation to major benchmarks.

6. Research the Least Expensive Way to Gain Exposure

Commodity investing can be an expensive venture, and if one is not careful, it can be easy to erase value through expenses like commissions and other fees associated with trading. One of the first things every investor should do is take a look at their strategy and then research if there is a cheaper way to gain the exposure. Often times, there is a corresponding ETP to a futures-based strategy that can offer a much more enticing expense structure. The constant shifting of positions required by commodity investing can quickly eat away bottom-line returns, as commission fees rack up quickly, not to mention the capital gains on a short term trade. Failing to consider one’s expenses is essentially allowing the markets to steal from you.

When considering your commodity trading strategy it is important to see the bigger picture. Is there a fund that trades the same contracts for a lower price? Is there a company that offers good exposure to a commodity that doesn’t require the constant movements that are needed for futures investing? Most important of all, is there a cheaper way to employ the same strategy? While a few measly basis points may not seem like a lot, consider a portfolio of $1,000,000. Let’s say that each year that portfolio is subject to fees of 1% of total assets (not an uncommon expense for active traders). If one were to eliminate 0.25% from that figure, you could save $2,500 every year. Drag that out over ten years of trading and you have an extra $25,000 sitting in your pocket. Commodity investing can be expensive, but there are plenty of ways to beat the fees, it simply takes diligent and careful research.

7. Consider “Indirect” Positions In Commodities

Investing in commodities can be done through 3 means: 

1. holding the actual physical natural resources (generally gold or another precious metal),
2. holding futures contracts that are linked to the commodity,
3. holding stocks of companies whose operations revolve around the exploration, extraction, and sale of commodities.

[Regarding #3 above,] stocks of gold mining companies can be seen as an indirect investment in gold [as they] tend to exhibit relatively strong correlations to the underlying resources… because the profitability of these companies generally depends on the market price for the goods they sell. In the case of a gold miner, higher gold prices will generally translate into higher earnings since they will receive more money for each ounce of the metal they uncover and sell. Similarly, oil stocks tend to perform well when crude prices climb and timber stocks do well when lumber prices are elevated. The benefit of this approach is that stocks don’t exhibit contango that is common in commodity futures contracts–often to the detriment of positions in these securities.

It should be noted, however, that stocks of commodity-intensive companies will not always exhibit perfect correlation with the underlying natural resource. These stocks are, after all, stocks – meaning that they will be impacted by movements in broad global equity markets. That may diminish one of the appealing attributes of commodities; the potential for diversification benefits and a low correlation with stocks and bonds.

8. Understand the Nuances of the Different Commodity ETP Strategies

The old saying is that there is more than one way to skin a cat. That’s certainly applicable when it comes to investing in commodities; there are a number of different ways to tap into this asset class. Even in a futures-based approach to investing in natural resources, there are multiple options for crafting a commodity position. The details of an investment in commodities may seem insignificant, but they can actually end up having a meaningful impact on bottom line returns and volatility.

For any given commodity, there are generally multiple futures contracts that are distinguished by the maturity date. For example, there are crude oil contracts traded on the NYMEX expiring each month of the year. Other futures have four or five maturity points in each calendar year, and in many cases there are contracts listed for years in advance (it is possible to, for example, to invest in a crude oil futures contract that expires in 2015).

Exchange-traded commodity products can generally be categorized into three groups, depending on which type of futures contracts they hold:

• Front Month Futures
• Rolling 12-Month Futures
• “Dynamic” Futures

Many of the commodity ETPs on the market focus on front month futures contracts, rolling exposure as the contracts approach expiration and using the proceeds to invest in the second month futures contracts. The benefit of this strategy is that front month futures tend to exhibit the strongest correlation to spot prices in the short term, meaning that products such as USO and UNG are optimal for those expecting to be in a position for a short period of time.

The downside is the potential for the adverse effects of contango. Products that focus on front month futures must roll holdings on a monthly basis [and, as such,] they are vulnerable to more frequent return erosion resulting from an upward-sloping futures curve. ETPs that spread exposure across 12 months of futures contracts, on the other hand, may not experience the same degree of return erosion since only a fraction of the portfolio changes each month. In return for that benefit, these products might not exhibit quite the same correlation to spot prices.

Finally, there are a growing number of ETPs that don’t stick to a predetermined roll strategy, instead examining observable market prices to determine which contracts are optimal for minimizing the adverse impact of contango or maximizing the benefit of backwardation.

While these approaches and the products that employ them may seem similar, they can lead to very different results. Make sure you understand the nuances of each strategy before jumping in to a commodity ETP.

9. Recognize That Some Commodities are Better Inflation Hedges Than Others

Investing in commodities…is generally assumed to be an effective way to protect investor portfolios from the adverse impact of inflation. Because inflation, by definition, means an increase in prices, this can obviously be a boost to natural resource prices and rising prices for energy, metals, and agriculture results in a higher consumer price index (CPI). While inflation is generally bad for fixed income and can have an adverse impact on stock prices as well, the conventional wisdom is that this phenomenon is a big positive for positions in commodities.

It is important to understand, however, that not all individual commodities are equally effective as inflation hedges. Some exhibit a very strong correlation with indications of rising prices such as the CPI, while others are not nearly as effective. That means that for investors concerned primarily with protecting their portfolios from the ravages of inflation, picking the right commodity (or commodities) is a key consideration.

10. Actively Monitor Your ETP Positions

Though estimates vary, as many as 90% to 95% of commodity investors report losses from their trading activities. Commodities are volatile, difficult to predict, and as such, can be extremely frustrating investments. One sure way to lose money is to simply neglect a position. While it seems fairly obvious that a lack of monitoring is a poor choice, the recent influx in commodity ETPs has made this asset class more readily accessible to those who may not be used to keeping a watchful eye on their positions.

A commodity position will typically be measured in hours and days rather than months and years. Prices can be extremely volatile with seemingly insignificant events having a major trickle-down effect on the underlying investment, so the need for active monitoring is vital to the commodity space. Note that this piece of advice is most applicable to futures-based investments; there are a select few physically-backed commodity ETPs as well as equity investments that can be used for longer term strategies.

If you do not have the time to watch your position through out the day, you probably have no business making the investment in the first place. Other than VIX contracts, commodities can be some of the most volatile investments available today and investors need to proceed with caution.

On the flip side, actively monitoring will not only avoid losses, but it will typically lead to gains. Those who keep one ear to the ground so to speak, will have a much better chance of hopping in and out of trends intraday and turning a quick profit from the momentum of commodity markets. Commodity trading is meant to be volatile and for those who are unable to stomach the risk, it can be a brutal investing process. As a more general piece of advice, have a profit objective for each position and be willing to accept your losses when you were wrong. A sound and stable mind combined with good risk management will lead to smarter and more effective commodity trades.

*http://commodityhq.com/2012/the-ten-commandments-of-commodity-investing/

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1. Why You Should Invest in Silver and What Your Options Are

Silver is a popular investable asset, attracting investors from around the world thanks to its numerous industrial applications as well as its traditional role as a store of value and an inflation hedge. There are a number of different options for investing in silver, including exchange-traded futures contracts, stocks of companies engaged in the extraction and sale of the metal, and both physically-backed and futures-based ETFs and ETNs. Investors also have the option of buying coins or bars of the metal in order to obtain physical exposure. Let’s discuss the merits of investing in silver and review what the options are. Words: 2319

2. Want to Invest In Silver? Here are 25 Ways to Do Just That

Now that Q4 is underway, investors are scrambling to find the right asset class for this rocky environment. Last quarter wreaked havoc on a number of investments and portfolios alike, as the global economy seems to be on a downward spiral. Given the current environment, various investors have flocked to their favorite safe havens to wait out the storm. Gold is perhaps the most popular safe haven in troubled markets, though its actual use as a metal is relatively low. As such, there has been much speculation over whether or not the metal is overvalued, scaring a number investors out of gold and into another precious metal, silver. Words: 3422

3. Don’t Delay! Here are 50 Ways to Invest in Gold

Beyond its role as a diversifying agent in a portfolio, perhaps the most enticing attribute that gold offers is the huge potential for price appreciation. Although prices were stuck in somewhat of a rut in the middle part of the last decade, financial turmoil, money printing, and widespread fears over inflation have pushed gold prices sharply higher in recent years to near all time highs… Given the continuation of easy money policies by the Fed and other central banks around the world, as well as the very real possibility of more turmoil in the financial space, it isn’t surprising that many investors are looking to cash in on this modern day gold rush. For these investors looking to make a play on this elusive metal, we explore below every nook and cranny of the investing world to offer 50 ways to play gold. Words: 2768

The EU has delivered on its threat to ban the import of crude oil from Iran, in response to its nuclear programme. The latest round of sanctions prohibits any new oil contracts, while allowing for existing deals to run until July but Tehran is apparently finding ways to keep business pumping. Reports say Iran will keep supplying one of its biggest customers – India – but will get payment in gold instead of dollars.

*http://www.youtube.com/user/RussiaToday?feature=watch

The oil sands in northern Alberta are crucially important to the Canadian economy. People from all over the country are traveling there to find work. The news is filled with controversy over proposed pipelines (the Keystone XL and the Northern Gateway) to carry the oil to export markets. Here are 10 things everyone should know about the oil sands.

So says an article* posted on www.sympatico.ca which Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has further edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) below for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

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1. The oil sands are NOT the “tar” sands

(credit: Getty Images)

In the past, the oil sands were referred as tar sands because the bitumen – the very viscous oil found in the oil sands – was used for roofing and paving tar. This was an ineffective use of the oil sands because it did not harden enough.   2. Alberta has the third highest amount of proven crude oil reserves in the world (credit: Getty Images) After Saudi Arabia (260.1 billion barrels) and Venezuela (211.1 billion), Alberta with 170.8 billion barrels ranks third. Of that, 169.3 billion barrels are crude bitumen in the oil sands and 1.5 billion barrels are in conventional crude. Alberta holds 96% of Canada’s oil reserves.    3. Only 54% of the oil in the oil sands is currently recoverable (credit: Getty Images) There are 315 billion barrels of potentially recoverable oil in Alberta’s oil sands. Under current economic conditions – mainly the price of oil – and the technology available, only 170.8 billion barrels are worth recovering.     4. The U.S., Venezuela and Russia also have oil sands (credit: Getty Images) Oil sands are also found in Venezuela, the United States and Russia. Alberta’s oil sands are the largest, the most developed and use the most advanced production processes.    5. 2 methods are used to extract oil from the oil sands (credit: Getty Images) The two main ways are: surface mining: where the bitumen must be within 75 metres of the surface. Approximately 2 tonnes of sand is dug up to find one barrel of synthetic crude oil. Only about 20% of the oil sands oil is recoverable through this method   in situ recovery: uses steam, solvent or thermal energy to make it possible to pump the bitumen to the surface. Immense amounts of water are necessary to recover the bitumen and the oil companies involved are working on recycling and reducing the amount of water used.    6. Bitumen from the oil sands must be upgraded before it is sold as crude oil The oil sands bitumen has been degraded by million of years of organic processes which leave it with too much carbon or too little hydrogen.The upgrading, which is usually done near Edmonton, involves three steps: separating the compounds; improving the hydrogen to carbon ratio and removing contaminants such as sulphur.   7. Upgraded bitumen (known as synthetic crude) travels by pipeline to refineries across North America (credit: Getty Images) Most of the oil sands oil is moved through pipelines to refineries or to ports for shipping. Most of it is refined in California, the U.S. Midwest, the Gulf Coast and southern Ontario and Quebec. A small amount is refined in Alberta for local use. Two new controversial pipelines have been proposed: the Keystone XL would carry oil sands crude to the U.S. Gulf Coast, and Enbridge’s Northern Gateway project would travel over the Rockie Mountains to the British Columbia coast.   8. Producing oil from the oil sands creates more greenhouse gases than from ”conventional” oil (credit: Getty Images) In situ excavation creates two to four times the amount of greenhouse gases per barrel of the final product as conventional oil. In situ ”well to wheels” emissions – which includes combustion of final product – creates 5% – 15% more carbon dioxide than average crude oil, according to the consulting firm Cambridge Energy Research Associates.     9. Oil companies are required to return mine sites to their natural states once a mine is finished (credit: Getty Images) Once a company is finished with a mine site, the developer is required to restore the site so that the ecosystem is as healthy as it was before. For a surface mine, this means putting the sand, clay and gravel back into the mine, followed by topsoil so that the forests will regenerate. Surface mining has disturbed 715 square kilometres of oil sands land. About 71 square kilometres are under active reclamation, including more than 7.5 million newly planted seedlings. Most of the oil sands are only accessible by in situ methods that disturb only 10% to 15% of a similar sized surface mine.     10. The oil sands are the highest non-renewable revenue generator in Alberta (credit: Getty Images) In fiscal year 2010 – 2011, the Alberta government collected more than $3.7 billion in royalties from the oil sands. This was the second fiscal year that the oil sands were the top source of non-renewable resource revenue in the province. This money became part of the government’s general revenues, which funds hospitals, schools and infrastructure.  *http://finance.sympatico.ca/galleries/oil_sands.htm?feedname=FINANCE_GALLERY-Oil-Sands&pos=9&nolookup=true   If you enjoyed reading the above article then: Sign-up for Automatic Receipt of Articles in your Inbox or via FACEBOOK | and/or TWITTER so as not to miss any of the best financial articles on the internet edited for clarity and brevity to ensure you a fast an easy read.      Related Articles: 1. Canada’s Oil Sands: “The World’s Dirtiest Commodity”? When you think of Canada, which qualities come to mind: the world’s peacekeeper, the friendly nation, a liberal counterweight to the harsher pieties of its southern neighbour, decent, civilised, fair, well-governed? Think again. This country’s government is now behaving with all the sophistication of a chimpanzee’s tea party. Words: 1377 2. How ‘Crude’ are Canada’s Oil Sands? The carbon footprint left by Canada’s oil sands has been a target of criticism for years with many environmentalists suggesting that the extraction and processing of bitumen from Alberta’s northern oil sands is “two to three times worse” for the environment than any other supply of oil on the planet. Is that legitimate criticism? Words: 692 3. Crude Oil: How ‘Sweet’ it can be! Some people arbitrarily speak about oil as if it is a single, indistinguishably homogenous substance without any unique differentiation, but this is actually not the case at all! In fact, there are many different kinds of oil. Words: 1007 4. What Happens to Oil Prices if Israel Bombs Iranian Nuclear Facilities? We now believe that there is at least a 50% probability of Israeli airstrikes against Iranian nuclear sites… Iran has multiple retaliatory options at its disposal…[and it begs the question:] Which options would most adversely affect the price of oil? [Let's take a look at what those options would be.] Words: 544 5. What is Shale Oil? People often say: “You can’t squeeze blood from a stone.” However that’s exactly what shale oil is. An alternative fuel, created by squeezing our planet’s proverbial “Life Blood” out of rock. Words: 1066 6. Peak Oil: What a Farce! It wasn’t supposed to be this way. By now, Peak Oil was supposed to be a fact of daily life. People were supposed to be lined up at gas stations, struggling to buy US$10-a-gallon gas. Solar and wind companies were supposed to occupy prominent places on the Big Board instead of going out of business right and left. People were supposed to have diminished expectations – resigned to shivering in the dark. Free markets, a flawed system of commerce, were to be exposed as a misleading theoretical construct, incapable of providing for people’s needs…The world was running out of resources…Now, suddenly, there is a different tale to tell and the New York Times is up to the task. Up and down the Americas, we learn, there is an Oil Boom. Suddenly, we have gone from enforced austerity to an unheralded plenty. Middle East, watch out! [But all is not as it seems. Let me explain.] Words: 1440 7. Peak Oil Is Still With Us – Here’s Why In a recent article called There Will Be Oil in the WSJ, Daniel Yergin once again attempts to debunk the concept of peak oil and sees global production capacity growing to 110 mmbpd by 2030, followed by slow decline. In this short report I take a quick look at his key arguments in an effort to bring further convergence between the peak oil and business-as-usual camps. [Unfortunately, I failed to do so concluding that Peak Oil is still very much with us. Let me explain.] Words: 2032 8. Get Positioned: Oil & Uranium Going to Record Highs! Here’s Why As the world approaches ‘Peak Oil’ crude oil usage will begin to be rationed more and more and the world will turn to nuclear energy to meets its energy needs. As such, expect both oil and uranium to surpass their previous record levels of US$147 per barrel and US$140 per pound, respectively, within the next 2-3 years. Let me explain why. Words: 1446 9. Why Oil is Headed To $300 – Yes, $300! The price of oil is headed “unimaginably higher” in the next few years – to somewhere north of $300 a barrel – because of two very simple forces. Words: 708 10. U.S. Military Warns of Serious Oil Shortfall by 2015 The US military’s Joint Operating Environment report from the US Joint Forces Command has warned that surplus oil production capacity could disappear by 2012 and that there could be serious shortages by 2015 with a significant economic and political impact. Words: 455

So says an article* posted at www.zawya.com.

Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([ ]), abridged (…) and reformatted the article below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

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Gold’s Vulnerability

Of all commodities, gold is placed as the 8th [ see table below] most vulnerable in a recession, according to the BarCap study, which took into account inventory levels, correlation to emerging markets and their performance in the crisis of 2008.

Notes the BarCap research:

Gold’s fairly high ranking is interesting because it performed relatively well in 2008-09. However, this time around, gold prices have been stronger than they were prior to September 2008, whilst speculative positioning is also a little higher.

Gold’s strong performance in previous economic downturns is a positive, but not enough to offset these other negatives. It is important to note, however, that gold’s high ranking is also a function of fundamental factors such as costs and emerging market exposure, which are arguably less important in influencing gold prices than they are for other commodities.

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In addition, gold-supportive factors that are less important for other commodities, such as being a hedge of economic and financial uncertainty, have not been taken into account in the research [causing BarCap to express caution, as follows]:

Therefore, the implication of gold’s high ranking needs to be hedged somewhat. Nevertheless, it does suggest that if the financial factors that have supported physical investment buying were to fade, then gold prices could start to look very precarious indeed.

Crude Oil’s Vulnerability

The BarCap research ranks crude vulnerability at midlevel [Brent #13 and WTI (West Texas Intermediate) #16 out of 30 commodities], primarily due to low inventory levels, noting:

A relatively low level of inventories globally is supportive, but linkage to emerging markets is relatively low, whilst it has an above-average linkage to global growth and speculative interest is relatively high. Brent crude prices appear more vulnerable to a sharp slowdown in growth and oil demand than WTI, mainly because WTI oil prices have already fallen much further.

[The report also mentions that] crude prices have [also] benefited from disruptive supplies from Libya to Iraq, Yemen, Syria, North Sea crude and underperformance in oil production in Russia, China, Canada and Nigeria, saying:

Crude oil spare capacity is very low. At an estimated 2-3m bpd, most of it held by Saudi Arabia and made up of more sour, heavy crude types, the global oil supply industry has very little slack in its system. This means that, as was the case in 2008, OPEC should have little difficulty in cutting output significantly if required. The combination of low inventories and limited spare capacity suggests a high degree of support for crude oil prices even if demand conditions deteriorate significantly.

*http://www.zawya.com/story.cfm/sidZAWYA20111006051717/Why_golds_vulnerable

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So says David (www.topforeignstocks.com)  in edited excerpts from his original article*.

Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) and www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) has further edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

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David goes on to say, in part:

Eastern Europe and Eurasia have the largest known natural gas resources, which are concentrated in the countries of the former Soviet Union. The Middle East also holds large volumes of natural gas due to the presence of oil. [In fact,] more than half of the world’s proven reserves are concentrated in Russia, Iran and Qatar in large conventional fields.

The following chart shows the World’s Ten Largest Known Natural Gas fields:

Click to enlarge

Based on assumptions of recovery and extent of deposits, Marcellus and Haynesville, two of the largest identified fields in the United States, rank respectively as the the third and fifth-largest fields gas fields in the world.

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The world’s other largest fields are located in:

1. Qatar (North Field),

2. Iran (South Pars),

3. U.S. (Marcellus), 

4. Russia (Urengoy),

5. U.S. (Haynesville),

6. Russia (Yamburg),

7. Turkmenistan (South Yolotan),

8. China (Ordos basin),

9. Russia (Bovanenkovskoye), and

10. Saudi Arabia (Ghawar, which is also the world’s largest oil field).

*http://topforeignstocks.com/2011/11/17/the-worlds-10-largest-known-natural-gas-fields/

Related Articles:

1. How to Play the Lowest Natural Gas/Crude Oil Ratio on Record

One of the things we look for in the markets is anomalies or disconnects from historical tendencies that signal some element of a traditional relationship between two things is changing or has changed. Often, the relationship is eventually returned to “normal”, meaning money can be made if an investor is on the right side of the trade. Other times, the relationship has been fundamentally altered in some way, so understanding the reasons behind the shift can become a source of opportunity, since it can either provide understanding about relevant long-term trends or signal a shift in an existing one. [Such being the case let's take a look at] the ratio between natural gas and crude oil [and determine how best to play this investment opportunity.] Words: 1069

2. Where Do Gold & Silver Rank in Vulnerability to a Recession Among Other Commodities?

A Barclays Capital research [report] notes that gold prices are vulnerable to a recession – more so than some of the other commodities. In the last recession of 2008, gold prices appreciated the least among precious metals. Below is a table that ranks 30 different commodities. Words: 571

3. Commodities, Including Gold & Silver, Historically Perform Well (on Average) in November

Have you been wondering how commodities will fare in November? [Below is a chart of] how select commodities performed in the past 25 Novembers (since 1986). Words: 489

We now believe that there is at least a 50% probability of Israeli airstrikes against Iranian nuclear sites… Iran has multiple retaliatory options at its disposal…[and it begs the question:] Which options would most adversely affect the price of oil?

So said Marshall Adkins (www.raymondjames.com)  over a year ago in an article* which bears reposting. 

Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has edited ([ ]), abridged (…) and reformatted the original article below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

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Ranked by their likely impact on the oil market (from least to greatest), they are as follows:

1. Iran cuts off oil exports and launches a wave of terrorism

It’s safe to say that Iran’s oil exports (currently about 2 MMbpd) will be immediately halted in the event of war. Even without a deliberate shutdown by Iran, pipelines are liable to be damaged by bombing, and tankers would obviously not risk sailing into a war zone. . .Iranian-backed militias are ready to attack U.S. forces in Iraq and perhaps other Arab countries. Iran would also utilize Hezbollah and Hamas to attack Israel directly. Terrorist attacks of this kind would not physically disrupt oil supply, but they carry the risk of the conflict escalating, thus sharply widening the geopolitical risk premium in oil prices.

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2. Iran mines the Strait of Hormuz

The Strait of Hormuz, the sole waterway out of the Persian Gulf, is just 45 kilometers wide and is the tanker route for not only Iran but also Iraq, Saudi Arabia, Qatar, and the United Arab Emirates. With two shipping lanes just 3.2 kilometers across each, it would be quite simple for Iran to place hundreds of mines across the route, effectively bringing any shipments to a halt. This represents an immediate supply loss of roughly 15 MMbpd.

3. Iran destroys oil infrastructure around the Gulf

Remember the billowing smoke coming from Kuwaiti oilfields that Saddam Hussein’s army set on fire while retreating in 1991? Now picture this same scenario playing out again, except in every Arab country near the Persian Gulf. If you want to contemplate the nightmare scenario following airstrikes against Iran, this is it. . .Iran could retaliate by attacking producing fields, pipelines, shipping terminals (for example, Ras Tanura in Saudi Arabia), and other petroleum infrastructure across the region. The damage from such attacks could take years to repair. . .Some damage could well be permanent. In any case, the potential supply loss would be astronomical.

There are basically two roads ahead for the Iranian nuclear crisis.

1. A diplomatic solution [seems unlikely].

2. Military action – likely Israeli airstrikes – against Iranian nuclear sites [in the weeks or months ahead. This would] lead to higher oil prices — potentially much higher.

For now the oil market is largely ignoring Iran but if war becomes inevitable then oil prices will go really high, really fast.

*http://seekingalpha.com/instablog/378432-bill-paul/30265-raymond-james-says-oil-markets-ignoring-big-iranian-war-risk

One of the things we look for in the markets is anomalies or disconnects from historical tendencies that signal some element of a traditional relationship between two things is changing or has changed. Often, the relationship is eventually returned to “normal”, meaning money can be made if an investor is on the right side of the trade. Other times, the relationship has been fundamentally altered in some way, so understanding the reasons behind the shift can become a source of opportunity, since it can either provide understanding about relevant long-term trends or signal a shift in an existing one. [Such being the case let's take a look at] the ratio between natural gas and crude oil [and determine how best to play this investment opportunity.]

So says Dr. Stephen Leeb (www.leeb.com) in edited excerpts from an article* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([ ]), abridged (…) and reformatted (sub-titles and bold emphases) below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

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Leeb goes on to say, in part

Crude oil’s inexorable ascent back to… $100 per barrel has brought out all sorts of comparisons to the last time crude reached these levels, in the spring of 2008 and… it has brought the discussion back to ways that dependence on crude oil can be reduced. This got us thinking about natural gas…

Like with our silver and gold discussion this issue [see here (1)], the ratio of natural gas to crude oil is one that has traditionally been used to gauge the overbought or oversold nature of one of the two components…The ratio is now very near record levels, and will almost certainly be in uncharted territory near 30 once you read this issue. The ratio has traditionally run between 5 and 15 going back to the mid-1990s, and spikes have historically meant that the price of oil had risen too far. However, lately the relationship between the two seems to have come apart for a variety of reasons:

As you would expect, the heavily skewed nature of the ratio means one of two things can happen.

1. Either natural gas will rise in price, which is unlikely merely due to the supply overhang, or
2. crude will fall, [which is] equally unlikely, at least in the near-term future, given the geopolitical situation in the Middle East and the strategic demand from both emerging markets and the U.S.

Either way, the discrepancy highlights the fact that gas is incredibly cheap right now relative to oil. This got us thinking—where would this odd situation have the greatest impact? The short answer is not a natural gas ETF, which as a group were among the worst-performing ETFs in 2010 and are likely to remain low for the time being. Massive reserves around the world mean a large supply overhang is going to persist for some time regardless of what happens with oil, making a sustained rise in natural gas prices extremely unlikely. However, the low price of natural gas to crude oil makes Canadian oil sands extremely interesting, and thus we think a far more interesting way to play the situation is via the Guggenheim Canadian Energy Income ETF (ENY). As crude has risen, the economics of extracting oil from Canadian oil sands have vastly improved and made this avenue of production infinitely more competitive…

ENY tracks a tactical allocation between oil sands stocks and higher-yielding Canadian energy companies. The fund is designed to combine the most profitable and liquid of these companies based on the price trend of oil. In times of rising oil prices, like now, this strategy makes sense.  When prices are heading the other way, the allocation shifts to 30% oil sands and 70% Canadian energy stocks, thus providing equity upside when oil is rising and additional income security when it is not. The fund is relatively small, at $270 million, but is liquid (around 90,000 shares per day) and it currently yields 2.2%…

Oil sands extraction is extremely expensive and uses tons of natural gas in production and refining—the Athabasca oil sands deposit in Alberta alone uses over one billion cubic feet of natural gas per day – and although natural gas is abundant and relatively cheap, it is still your average oil-sands producer largest operational expense. In other words, the current record-low ratio means a profit boon to the bottom line of oil-sands producers as costs for natural gas remain low and revenue skyrockets.

*http://www.leeb.com/content/playing-ratio%E2%80%94-high-oil-and-cheap-gas

Link and Title of Article Referenced Above:

1. Silver: The Party Isn’t Over Yet

Investing is often a study of inconsistencies and contradictions. If it weren’t, the markets would be a simple game and there would no back and forth between buyers and sellers, greed and fear and technical analysts, fundamentalists and momentum players. Our experience with silver since the end of last year illustrates this [but] we [still] think it makes sense to get exposure to the metal. [Let us explain.] Words: 820

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1. What Happens to Oil Prices if Israel Bombs Iranian Nuclear Facilities?

We now believe that there is at least a 50% probability of Israeli airstrikes against Iranian nuclear sites… Iran has multiple retaliatory options at its disposal…[and it begs the question:] Which options would most adversely affect the price of oil? [Let's take a look at what those options would be.] Words: 544

Have you been wondering how commodities will fare in November? [Below is a chart of] how select commodities performed in the past 25 Novembers (since 1986).

So says David Ristau (http://www.theoxengroup.com/)  in edited excerpts from an article* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Who in the world is currently reading this article along with you? Click here to find out.

Ristau goes on to say, in part:

A lot of that will depend on the dollar movement. It appears that the dollar may be ready to weaken further on Euro bailout plans for November, and that may give the dollar some ceiling. Historically, November has been good for some commodities and bad for others. [Take a look at the table below.]

*http://www.theoxengroup.com/

Related Articles:

1. Gold to Bounce Back to $2,250 – $3,000; Silver to $52 – $62; HUI to mid-900s by Year End

A tsunami doesn’t start with a bang, but with a whimper.  The first sign is a little hump in the water way out in the distance that is barely notable.  Anyone who catches a glimpse of it simply continues to expect the day to be the same as the last many days – calm and beautiful waters along the shore.  This is the point where we are, today in the Precious Metals sector. Many have seen the little roll of water out in the distance as Gold edged up in the first move of a more parabolic slope, yet most investors are mired in the same expectations of yesterday – a return for Gold to correct down into a lower base. Our analysis based on the fractal relationship to 1979  shows, however, that the mid 900s are a realistic target for the HUI by the end of the year or early in 2012; that $52 to $56 should be achievable for silver, with $58 to $62 as real possibilities; and that Gold should go the $2250 level followed by $2500 with the potential for $3,000, or a bit higher, now on the radar screen. Let me explain why that is the case. Words: 2130

2. Aden Sisters: Buy Gold NOW as it Corrects on its Way to $2,000

When you just consider the downgrade of U.S. debt, the jobs problem, the housing situation, the European bank concerns and their debt crisis, the negative outlook for the global economy, not to mention that the Fed will likely seek new measures to help the economy, we just don’t see gold coming down any time soon, other than having a normal downward correction [as currently is the case. Let us show you why.] Words: 1102

3. Chris Vermeulen: Gold to Rebound to $1,775 by Year-end