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Can Commodity Trading Be An Inflation Hedge

Commodities / Commodities Trading Jul 08, 2009 - 04:18 AM GMT

By: Andrew_Abraham

Commodities With all the money printed last year by governments all over the world, Is it possible that commodity trading can be a source of hedge against inflation or even hyperinflation? As I have repeatedly stated, Inflation is a wealth destroyer. Instead of being a victim of inflation which stands the definite chance of occurring with all the stimulas money floating around ( or evaporated) one could potentially ride the wave of inflation and potentially make money.


Richard Rainwater made a fortune with the increase of price of crude. He was not the only one. Commodity trading advisors made tons of money buying crude because the trend was up. They simply followed the trend. Compare this to the common Joe who would complain every time he would fill up his car with gas. Look at it very simply, commodity futures traders profited by trend following and the average person lost purchasing parity. The same can be said last year with the price of wheat. Commodity trading advisors made money by buying wheat and the average Joe saw his pizza cost him more money and was somewhat of a wealth destroyer.

What would happen if the US dollar devalues? It would seem to be commodities that are based in US dollars ( which are most of them) would go up. Guess who stands to make money…and guess who stands to lose money. It is pretty clear. You have a choice to be a victim with inflation and let it destroy your net worth… or you can ride the potential trends.

Lets face it..at the end of the day…commodities are real…they can be traded. Currencies are a piece of paper ( toilet paper)…without backing of gold or silver… but a promise of value to back it and commodities are real. I would prefer the real stuff as a pose to a promise especially with all the money printed.

However , Commodities can be extremely volatile and risky.Commodities are leverage and investors can lose alot of money. There is nothing simple nor absolute.

Andrew Abraham
www.myinvestorsplace.com

Andrew Abraham has been in the financial arena since 1990. He is a commodity trading ddvisor and co manager of a Commodity Pool. Since 1993 Andrew has been a proponent of quantitative mechanical trading programs. Andrew's major concern is not only total return on investment but rather the amount of risk that one would have to tolerate in order to achieve returns He focuses on developing quant models that encompass strict risk adherence and correlation. He has been a speaker at conferences as well as an author of numerous articles. Andrew has spent years researching ideas that have the potential to outperform indices as well as maintain fewer draw downs.

Visit Angus Jackson Partners (http://www.angusjacksonpartners.com) Contact: A.Abraham@AngusJackson.com (mailto:A.Abraham@AngusJackson.com)

© 2009 Copyright Andrew Abraham - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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