Institutions are bullish on commodities as net long position rise to 16 month high as commodity trading companies

Managed futures provide investors with track records and specific trading strategies so an investor can choose a CTA based on the market they would like exposure too along with the type of risk they would like to expose themselves too.

Illinois, IL (prHWY.com) October 1, 2012 - Institutional investors including hedge funds an investment banks are betting on a rise in commodity prices especially the metals. After the Fed announced last week that it will do a third round of stimulus or quantitative easing institutions look for an increase in the price of commodities. According to data from the CFTC investors have increased their net long positions on commodities by more than 1 million contracts making I the largest amount of net long positions in more than 16 months. The data shows an increase in net long positions in copper, silver and gold. Investors are looking to the metals because they are a hedge against inflation which is expected to come and some point in the recovery due to the massive amounts of money the Fed is pumping into the market. This futures strategy of going long is a sign that the worst of things is yet to come. As investors flock to gold, a commodity strategy aimed at taking advantage of a weak dollar, investors buy futures contracts which have much more leverage and potentially a higher return. Commodity trading companies, such as investment banks are going long commodities because they also see signs that the Fed is attempting to create growth in the economy. Copper is used mostly in manufacturing and construction whereas gold is an investment or hedge. commodity trading companies are betting on a recovery or continued slow growth and inflation. With growth the price of Gold should go down as investors return to the stock market, but with these long positions in the futures market we are unsure where the economy is going as they purchase gold and copper.

Another commodity strategy that firms are using is options on futures contracts. This futures strategy is more likely being used as a hedge since options expire worthless the majority of the time. It is also a lower risk trade. Individual investors who do not have the expertise as some of these institutions can look to managed futures as a hedge. Managed futures are trading accounts traded by professional money managers or CTA's (commodity trading advisors). Investors can use managed futures to diversify their portfolio and potentially increase the overall returns of a portfolio and lower its volatility. Twenty four commodities rose more than 2.5% last week which is a sign to me that investors are betting on inflation. The Federal Reserve is simply creating false demand in the marketplace by making capital extremely cheap. By having a surplus of the dollar in the market place the Fed is betting that the economy will put this cheap capital to work by purchasing goods, therefore increasing demand for commodities and their price.
I am honestly unsure whether the bull market in commodities is due to expected inflation or an increase indemand to the excess of money in the market. What I can be sure of is that the Fed's actions will continue to cause a spike in the prices of commodities and those investors should have some commodity strategy in their portfolio. For more details please log on to www.cedarassetmanagementllc.com

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Tag Words: commodity strategy, futures strategy, commodity trading

Categories: Business

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