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What You Should Know About The Commodity ETF Market

Jun 19, 2008
In November of 2004 streetTRACKS Gold Shares Commodity ETFs made their way to the market. This commodity exchange traded fund was such a hit that it turned into 1.5 billion dollars in assets in just a few weeks of its launch. The name changed SPDR Gold Shares in May of 2008; just a few short months after the NYSE Arca took over the fund. Gold commodity ETFs have continued to grow in the United States since their date of inception, and are now traded in Singapore as well.

Gold has been the most successful of all of the commodity ETFs that are now traded, but there are other kinds of funds that you should know about before deciding what to add to your portfolio.

Silver and copper are examples of other metals that are traded as commodity ETFs. Both of which are fairly new but increasingly popular. Metal commodity ETFs are extremely liquid and tend to keep their value while other stocks might decline due to current world events. This makes metal funds very attractive to many investors. Metals are secured by the funds trustees, which ensure their safety and liquidity.

Probably the most desired, and most hated, commodity ETFs today are oil commodities. The nightly news anchors each and every day talk about the price of a barrel of oil. We all know how these prices effect the price of gasoline, which in turn effects the price of everything else. Those who have invested in oil are making money every day it seems. This is precisely why we love to hate oil commodities. While we don't want to pay the higher retail prices, it would be great if we could be paid by them at the same time.

Agriculture commodity ETFs cover everything that is farmed. These commodities include wheat, produce, cotton, corn, soybeans, and livestock. While they are not directly in the news every day, we see the prices at the grocery store steadily rising. Is this trend likely to end anytime soon? Probably not, since they seem to be rising with the cost of oil. Those who have a long term investment in an agriculture commodity exchange traded fund have probably not regretted it.

Diamond commodity ETFs are thought to be a bit more of a risk by some experts because the diamond market tends to fluctuate so much. These experts say that a diamond exchange traded fund is more like an up and down stock than a stable mutual fund and should be considered carefully before making an investment. This investor prefers diamonds surrounded by gold, and not in the stock portfolio.

The thing that is confusing to a new investor is that a commodity ETF is not a mutual fund, though it is wrapped up like one, and it's not a stock, but it is traded like one. They are typically right in between the two in terms of risk and return. If you are a new investor, or an old one, your age doesn't matter, commodity ETFs are definitely worth your consideration.
About the Author
Ryan helps you understand ETFs and how you can profit from investing in commodity ETFs.
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