Looking into Commodities

By | 11/24/2010

Introduction to Commodities

A commodity is usually a raw substance which has the same price no matter where you buy it from because there are no qualitative differences eg: gold, copper, oil, salt, etc. In other words, it’s the same no matter who produces it. And their price fluctuates with global demand.

Earlier this month, the US has decided to print and pump another $600 Billion into their economy to encourage people to borrow, invest, and spend, because hey, now there’s more money for everyone to use. But whenever you add more dollars into the pot then each dollar will be worth less than it used to. So as the printed money slowly makes its way into the consumers’ hands we may see some kind of inflation in the future.

I think one way to protect yourself from rising inflation rates is to take advantage of stocks and other investments that grow with inflation. One of these asset categories is commodities. I recently bought some shares of EnCana (ECA.TO) at $28.61/share. They produce natural gas from the ground which is used for many things from heating people’s homes to making fabrics, glass, paint, fertilizer, and other chemical usages. Growth stocks and other commodity related plays like agricultural machinery companies are a good hedge against the risk of high inflation as well.

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