I want to show you the best way to invest in gold and other commodities. But there is something you need to know...
Commodities are risky. One of the riskiest things an individual investor can attempt.
It's estimated that 95% of individual commodity futures traders lose money. That means 19 out of 20 walk away with less than they started.
You see, commodities trading is not investing. It's speculating that prices will move one way or the other. That's akin to gambling in my book.
Really, the only people that make serious money in commodities trading are the brokers. They pocket hefty commissions from clients that speculate on gold, wheat, oil, cattle, lumber and even coffee.
But that gravy train is ending.
Wall Street's commodity trading revenues stand at just half of what they were in 2008. And the buying and selling of grains, metals, energy and other goods now accounts for a thin 6.5% slice of the overall trading revenue pie -- down from 30% five years ago.
Banks used to rake in billions, not just from commissions but from their own trading book. Now, position limits and other regulations put in place by the Dodd-Frank Wall Street Reform Act have reined in those profits. Some companies have exited the business altogether.
The smooth, quiet trading in many hard assets last year also proved to be an obstacle. That's because speculators like extreme volatility. The wider and more erratic the price swings, the greater the trading potential. It's much harder to extract profits from a flat market.
What do I think about all this? I say that futures contracts are best left to experienced pros and those who use them for hedging purposes, not sheer speculation. Betting on whether a price moves up or down (especially over the short term) isn't investing anyway -- it's buying a lottery ticket.
If you really want to invest in scarce natural resources such as oil and platinum, then buy shares in quality producers that own vast reserves of these critical goods.