Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
From Global Virus Acceleration to Global Debt Explosion - 1st Apr 20
UK Supermarkets Coronavirus Panic Buying Before Lock Down - Tesco Empty Shelves - 1st Apr 20
Gold From a Failed Breakout to a Failed Breakdown - 1st Apr 20
P FOR PANDEMIC - 1st Apr 20
The Past Stock Market Week Was More Important Than You May Understand - 31st Mar 20
Coronavirus - No, You Do Not Hear the Fat Lady Warming Up - 31st Mar 20
Life, Religions, Business, Globalization & Information Technology In The Post-Corona Pandemics Age - 31st Mar 20
Three Charts Every Stock Market Trader and Investor Must See - 31st Mar 20
Coronavirus Stocks Bear Market Trend Forecast - Video - 31st Mar 20
Coronavirus Dow Stocks Bear Market Into End April 2020 Trend Forecast - 31st Mar 20
Is it better to have a loan or credit card debt when applying for a mortgage? - 31st Mar 20
US and UK Coronavirus Trend Trajectories vs Bear Market and AI Stocks Sector - 30th Mar 20
Are Gold and Silver Mirroring 1999 to 2011 Again? - 30th Mar 20
Stock Market Next Cycle Low 7th April - 30th Mar 20
United States Coronavirus Infections and Deaths Trend Forecasts Into End April 2020 - 29th Mar 20
Some Positives in a Virus Wracked World - 29th Mar 20
Expert Tips to Save on Your Business’s Office Supply Purchases - 29th Mar 20
An Investment in Life - 29th Mar 20
Sheffield Coronavirus Pandemic Infections and Deaths Forecast - 29th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

Washington Targets Commodity ETF's

Commodities / Exchange Traded Funds Sep 12, 2009 - 10:13 AM GMT

By: Ron_Rowland

Commodities

Best Financial Markets Analysis Article When it comes to investing in commodities, the people I know have two opposite emotions — either obsessed or terrified.

I can see why. The commodity markets — contracts representing tangible goods like gold, oil, grains, etc — are known for sharp reversals and wild volatility. The potential profit can be enormous if your forecast is correct. If you’re wrong … let’s just say the results aren’t pretty.


Today I’m going to tell you about some of the best new investment instruments created in my lifetime — and how their very existence is under attack from powerful vested interests.

Commodity ETFs Revolutionize Investing!

Until recently, commodity investing was mostly restricted to professional traders, large institutions and a few intrepid individuals. This began to change with the introduction of commodity-based ETFs.

The idea wasn’t really so complicated: Start a fund whose price is based on a commodity market or a commodity-related index. Simple in concept, but difficult in reality mainly because of legal restrictions, these took a long time to resolve even as stock-based ETFs thrived.

SPDR Gold Shares (GLD) was an immediate success.
SPDR Gold Shares (GLD) was an immediate success.

Finally, the first commodity ETF launched in 2004. SPDR Gold Shares (GLD) was an immediate success. With the path now open, a flurry of similar funds hit the market in the next few years, tracking all kinds of commodities.

It didn’t hurt that this period was accompanied by a huge bull market in all kinds of natural resources. Crude oil went from less than $40 to more than $140 per barrel, gold climbed from around $400 an ounce to over $1,000, and corn jumped from $2 all the way up to $6!

With investors clamoring to get into booming commodities but afraid to trade highly-leveraged futures and options, these ETFs came at the perfect time.

Many were actually offered under a new structure called exchange-traded notes, or ETNs, that look a lot like ETFs but have some important differences. (See my February 6, 2009 Money and Markets column about the unique risks of ETNs.)

Three Kinds of Commodity Funds

Commodity ETFs and ETNs can be broken down into three groups:

1. Broad-based: These track an index that includes many different commodity markets. These are very useful to long-term investors who want to allocate a small portfolio slice to commodities and don’t care so much about following particular markets. Some examples are …

  • iShares S&P GSCI Commodity Index (GSG)
  • PowerShares DB Commodity Index (DBC)
  • GreenHaven Continuous Commodity (GCC)

2. Commodity Sectors: This type of fund tries to cover a particular category of commodities, like energy, agriculture, metals, etc. These are naturally more volatile than the broad-based funds, but have the potential to move much higher if the sector takes off. This group includes funds like …

  • PowerShares DB Energy (DBE)
  • PowerShares DB Agriculture (DBA)
  • Elements Rogers ICI Metals ETN (RJZ)

3. Specific Commodities: Funds in this category track the price of one particular market, like GLD that I mentioned above. These are considered very speculative. Here are some you might have heard about …

  • United States 12-Month Oil Fund (USL)
  • iPath DJ AIG Sugar ETN (SGG)
  • iPath DJ AIG Copper ETN (JJC)

As with stock ETFs, some commodity ETFs and ETNs are designed to deliver leveraged and/or inverse returns. These features can be useful but also bring extra volatility and risks. They should be used very cautiously.

Regulatory Chaos Threatens to Eliminate Innovation

A bureaucratic turf war is threatening the markets.
A bureaucratic turf war is threatening the markets.

I’m sure you’ll agree that having these alternatives available is a good thing for investors, even if commodities aren’t for you. So you might be surprised to learn that regulators are well on the way to eliminating your ability to invest in commodities with ETFs/ETNs.

Why? Several reasons, but for the most part it is a bureaucratic turf war. The Commodity Futures Trading Commission (CFTC) has long had a monopoly on the regulation of these markets. They (and their allies in Congress) would like to keep it that way.

ETFs and ETNs fall under the jurisdiction of the Securities and Exchange Commission (SEC). The CFTC can control some aspects of their activity, but on most issues the SEC is in charge.

Recent actions by the CFTC are causing some commodity ETF and ETN sponsors to reconsider whether this business has a long-term future. By enforcing “position limits” against the funds, the CFTC can effectively cap their size — which can make them less profitable for the sponsors and less liquid for investors.

The boogeyman is “speculation,” which some people think got out of hand when commodity prices shot so high in 2007-2008. I think they’re barking up the wrong tree. Financial markets are all about speculation! It’s not a bad thing, as long as the process is fair to all sides.

The struggle over these issues is ongoing. No one knows when — or how — it will be resolved. Some sponsors aren’t waiting. Just last week, Deutsche Bank announced it would liquidate its PowerShares DB Crude Oil Double Long ETN (DXO) as of yesterday (September 9). Investors who still own DXO today will receive cash equal to the net asset value as the shares have stopped trading.

Financial markets are all about speculation.
Financial markets are all about speculation.

Other funds like United States Natural Gas Fund (UNG) have stopped issuing new shares, allowing their share price to deviate from the actual value. This means new buyers are paying more than they should.

Sounds like a mess, doesn’t it? You are exactly right. I am saddened to see these innovative new funds threatened for no good reason. I want small investors to have choices, and I don’t want the commodity markets to be dominated by a small number of powerful institutions.

If you’re thinking about buying a commodity-related ETF or ETN, I highly suggest you do some homework first. Make sure that you’ll be able to stay in the fund you pick long enough to achieve your objectives.

I wish I could be more specific, but keep in mind we’re dealing with the U.S. government! It’s very hard to predict what they will do. Investors deserve better — so cross your fingers that the regulators come to their senses soon.

Best wishes,

Ron

P.S. I speak with Sean Brodrick every week about commodities, commodity ETFs, and commodity-related investments. He runs a service called Red-Hot Commodity ETFs. If you invest in commodity ETFs, or are considering it, then Sean and Red-Hot Commodity ETFs can help you stay on top of new regulatory developments and point you toward commodity-related ETFs that are not subject to CFTC scrutiny.

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules