Commodities

Three different exposures

A futures position tracks a contract month and requires margin. A futures-based fund adds roll and a management fee. A mining or energy share adds the company’s costs, debt and decisions. Gold held in allocated form is closer to the metal than an unallocated claim or a miner’s equity. Ask which of these the factsheet describes.

Contango and backwardation

When the later futures price is above the near one, a fund that rolls can buy high and sell low repeatedly. That drag can dominate the spot move. The opposite shape can help. Neither is a permanent state of a commodity, so a fund’s last three years are a poor slogan.

A limited role

Commodities can diversify some portfolios and can also fall with growth scares, as energy and metals did in more than one recession. They are not an automatic inflation hedge. Position size should assume a large drawdown, because these markets trend and reverse hard.