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

Gold and silver continue to receive the lion’s share of press headlines and 

So say the team at Pinnacle Digest (www.PinnacleDigest.com) in edited excerpts from their 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.

The article goes on to say, in part:

Key Copper Features

[Here are some features of copper which support our contentions:] 

1. Copper’s price and demand is not necessarily tied to short-term monetary policies. As stated, copper does not need inflation for it to rise in value. Real demand, which we have been seeing of late in China, the United States, India, Brazil, Korea and Russia, will not only maintain, but continue to outpace supply in the years ahead of us.
2. Copper is a more stable commodity than gold and more of a long-term trade in our view. At some point the gold bubble will burst and demand will simply vanish for a long period. With copper, [however] we doubt that will be the case for at least the next decade [given] the fast paced urbanization of China, India and Brazil. We believe the long-term established industrial uses for it, both domestically and abroad, justify cause for investors to be allocating a portion of their portfolio to the base metal.

[For detailed information on all the various aspects of copper please read the World Copper Factbook 2010 - International Copper Study Group]

 Copper in the Early Stages of the Commodity Super Cycle

Commodity super cycles [such as] we are [currently] in, generally last between 16 and 20 years (roughly) historically speaking. If we entered a new commodity super cycle in 2002 or 2003, following the tech bubble, we still have a long way to go [as the April 2011 chart from an Xstrata Copper presentation shows below].

Copper Demand Should Remain Strong – and Prices High

What the above graph so perfectly illustrates is that it takes time for emerging countries to build out their infrastructure. This continued infrastructure build out, in China, India and Brazil, should justify sustained high prices and high demand for copper. China and India have more than 20 times the population the U.S. did it when it industrialised in the early 20th century. Demand has [never] been fiercer and could last even longer in this 21st century super cycle commodities boom.

Copper Imports by China Surging

On January 10th 2012 it was announced that copper imports by China surged to an all-time record in December. This was reportedly due to pre-holiday stockpiling (China’s New Year is January 23rd) amid low domestic inventories for the world’s largest consumer of the base metal.

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What’s interesting to note is that China’s imports, as a whole, are down (2 year lows), but its copper imports have increased 7 months in a row, according to data on the General Administration of Customs’ website…[and] this is setting off alarm bells within the copper industry.

Tight credit conditions, after China raised bank reserve ratios six times in 2011, spurred metal imports as a means to secure trade financing. Unprofitable arbitrage between London and Shanghai in the first half caused a 29 percent drop in inventories as users ran down domestic supplies.

China has some catching up to do in its bid to secure and stockpile copper for future use. With copper off its April highs of close to $4.50 per pound, China is clearly buying up all it can get its hands on. The Chinese are bargain hunters, and just like in 2009, when copper prices were cheap, they are buying it up rapidly.

Copper Prices Going Higher

As you can see from the below graph, copper entered 2011 near an all-time high of over $4.50 per pound [and] has since declined some 30% (nearly $1 per pound).

Goldman Sachs analysts, Max Layton and Allison Nathan, wrote in a November 20th report that market jitters in Europe have led traders to take their focus off the fact that copper supplies are under pressure [and that] strikes by workers in Latin America have created a copper deficit which will trigger a “strong rally” in the second quarter of 2012.

China consumes 39 percent of the world’s copper, according to estimates by Morgan Stanley. There is no question that China is the very tip of the demand spear for copper. Where future copper supply will come from, outside of Chile, is a question on a lot of minds these days.

Future Copper Demand Growing Rapidly

Copper production has literally increased every year for 100 years (similar to oil). This simply cannot continue. Copper, although recyclable, is a finite resource. The United States has seen its copper production fall for a decade as Chile and Peru are leaving it in the dust.

It is our strong belief that, as world class deposits in mining friendly jurisdictions of the United States become ready for production, large companies will seize the opportunity. If the United States wants to increase its exports to balance its trade, copper is one metal it can achieve that goal with. Our team will discuss this in more detail in a future volume.

Copper Consumption Going Higher

Global copper consumption continues to inch ever higher…India, Korea, Russia and Poland combined will consume more copper than China over the next couple years. The amount of demand from the rest of the world, including the US, is [and will continue to be] staggering. It is the heartbeat of economic activity. China is leading the world in economic growth and is once again buying at a record pace, despite the price doubling since its last copper binge in 2009, in the expectation of increased economic activity…

What does this tell you about its forecasts for future demand and future valuations? What does it tell you about China’s thoughts on future inflation? With our team fully anticipating continued inflation and China confirming copper to be a bargain at these levels, we are bullish on the long-term outlook for copper and believe all these factors could create the perfect storm for copper companies and investors. [As such,] we believe…investors [should] be allocating a portion of their portfolio to this base metal.

* http://www.pinnacledigest.com/articles/vol-250-must-have-commodity-2012-copper

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About two years ago, I looked through a BHP Billiton presentation which listed the number of years remaining for particular commodities. It was not an analysis of “peak” commodities as such, just a report on when various commodities would be completely, 100% depleted based on current usage rates and reserve assumptions. Copper in that report was determined to be scarcer than oil! [What does that mean for the future well-being of the U.S. - and the world?] Words: 1380

2. Check Out These 5 Hard Asset Investment Alternatives to Gold

While the 2010 gold rush is making a lot of headlines, it’s important to not overlook other hard assets [such as silver, copper, platinum, palladium and rare earth metals] that are good investment alternatives to gold and have all rallied to fresh highs recently as well. While each of these offers its own strengths and weaknesses they are ways to diversify your holdings away from gold if you are worried about a crash. Words: 1561

3. Will Copper Replace Gold as World’s “Most Valuable” Metal?

I am convinced that we are still relatively early in a secular commodity bull market. In fact, with the modernization of Chindia and numerous other less-developed nations, I expect this bull market will be one for the record books. Fundamental demand coupled with inflation will push resource prices to unimaginable heights. Words: 805

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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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

About two years ago, I looked through a BHP Billiton presentation which listed the number of years remaining for particular commodities. It was not an analysis of “peak” commodities as such, just a report on when various commodities would be completely, 100% depleted based on current usage rates and reserve assumptions. Copper in that report was determined to be scarcer than oil! [What does that mean for the future well-being of the U.S. - and the world?] Words: 1380

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.

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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

According to Barclays Capital, gold, silver, platinum and palladium, as well as other commodities, generally stand a better chance of handling a global economic downturn than other types of investments [because] commodities “are on a very different footing” from two years ago [which they explain in detail below.] Words: 350

So says Robert Zurrer (www.moneytalks.net)  in edited excerpts from his original 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. 

Zurrer goes on to say, in part:

Agriculture: The Next Big Bull Market

Consistent with his devotion to buying undervalued assets, Rogers now sees the same quality of values in agriculture that he saw in gold and silver. [While he] is not selling his gold and silver believing  that “gold is certainly going to go to $2,000 over the years; it looks like it’s going to go much higher during the course of the bull market” and that “gold prices are not in a bubble because not everyone is buying yet”, he believes that “agriculture prices are still, on a historic basis, extremely depressed, and in my view I’ll probably make more money in agriculture than other things.”

Rogers thinks that the current commodities supercycle will last for 20 to 25 years, a view supported by the research of Chris Watling of Longview Economics who traced secular bull cycles back to 1750. As this commodity bull started in 2000, if Whatling and Rogers are correct, this bull will run higher until 2020-2025.

In short, if you missed buying gold and silver at extremely depressed levels, Rogers thinks you have another great chance to buy into an imminent bull market at great value because the fundamentals are [so much better than they have ever been].

There is a powerful underlying demand for food. When food prices surged in 2007 millions went hungry with riots from Egypt to Haiti and Cameroon to Bangladesh. Rioting calmed down in 2008 when prices dropped, but starting at the beginning of 2009 they’ve been going up and Rogers expects “more turmoil, but I didn’t expect it to happen this quickly because food prices are somewhat depressed”. Clearly a bull market rise from current levels will cause even more starvation, riots and urgent demand [as the chart below shows].

The FAO Food Price Index measures the prices of Dairy, Oils & Fats, Cereals Sugar & Meat.

On the longer term chart [below it is evident that] real food prices were more expensive in 1917 than they are here today. Demand is there. Agriculture will be “wildly exciting” as global food shortages worsen, according to Rogers. “You pick an agriculture product and I’ll say buy it,” he said.

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Shortages are showing up right now as the world population has more than doubled from 3 billion in 1960 while the amount of arable farmland has been decreasing. If the world population rises from its current 6.8 billion to 9.1 billion by 2050 as the United Nations forecasts, a lot of people are going to be scrambling for food.

Click on the 1900-2008 FAO Food Chart for a Larger Image

What to Invest in to Take Advantage

Good advice from Daniel Keirnan in his article “Farmland Investment, the Next Big Portfolio”:

The question is what are the best ways for making money from the agricultural sector? One way is to invest directly into agriculture stocks such as farm equipment maker John Deere (DE), global seed giant Monsanto (MON) or fertilizer company Potash Corp of Saskatchewan (POT).

Another method is to invest in agricultural futures through Exchange Traded Funds (ETFs) such as AIGA on the London Stock Exchange or DBC in the U.S. which tracks an entire basket of agricultural commodities including corn, soybeans, wheat, cotton, sugar, coffee, cattle and pigs. These commodities ETFs try to track the spot price of the various commodities they include.

The advantage of these stocks or ETFs is that they are easily trade-able by anyone who has an online brokerage account. The disadvantage, however, is that they are still financial instruments, and as such can fluctuate widely in price.

One option most individual investors tend to overlook is direct investment in farmland. In many ways, a farmland investment is more secure, stable and tangible then putting money into stocks.

Farmland investments for individuals will pay a regular yearly dividend from the sale of crops, and also provide the opportunity for long-term capital gains as farmland increases in value during a bull market in food.

Conclusion

Don’t buy gold now. Rogers says food and agriculture are great values and will be the next big demand driven bull market.

*http://www.moneytalks.net/daily-updates/5658-jim-rogers-stop-buying-gold-now-buy.html

Related Article:

1. Here’s Why Agricultural Stocks Are a Better Buy!  http://www.munknee.com/2010/11/buffett-says-buy-stocks-i-say-buy-agricultural-stocks/

Editor’s Note:

• The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
• Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.

Question: What asset has appreciated more than any asset since the year 2000? Answer: Farmland – by 1,200%! [George Soros and Jim Rogers have recognized that fact and invested accordingly. Here is what you need to know to do likewise.] Words: 974