How to Invest: Commodities & Gold

February 16, 2026

Welcome to How to Invest. In this article:

  • Main Feature: Commodities: Investing in the Raw Materials of Life

  • Investment Ideas for All Budgets

  • Educational Corner: The "Roll Yield" Trap (Contango Explained)

  • Did You Know? A Quick Financial Fact

Commodities: Investing in the Raw Materials of Life

While stocks represent companies and bonds represent debt, Commodities represent the actual "stuff" the world is made of. From the gold in your phone to the oil in your car, the wheat in your bread, and the copper in your pipes, commodities are the raw inputs of the global economy. Investing in this asset class is fundamentally different from buying stocks; you aren't betting on a CEO's vision or a new software update. You are betting on the basic economic forces of supply and demand. This section explores how adding hard assets to your portfolio can provide a critical safety net against inflation and geopolitical chaos.

What Are Commodities?

Commodities are tangible goods that are interchangeable with other goods of the same type. They are generally categorized into four main groups:

  • Precious Metals: Gold, Silver, Platinum. Primarily used as a store of value and a hedge against currency devaluation.

  • Energy: Crude Oil, Natural Gas, Heating Oil. The engine of the global economy, highly sensitive to geopolitical conflicts.

  • Agriculture ("Softs"): Wheat, Corn, Soybeans, Coffee, Sugar. These are driven by weather patterns, population growth, and harvest cycles.

  • Industrial Metals: Copper, Aluminum, Lithium, Nickel. These are tied to industrial production and technological trends (like EV batteries).

Why Invest in Commodities?

  1. The Ultimate Inflation Hedge: When the cost of living goes up (inflation), it is usually because the price of commodities (gas, food, materials) has gone up. By owning them, your portfolio rises along with your expenses.

  2. Low Correlation: Commodities often zig when stocks zag. In the 1970s "Stagflation" (high inflation, weak stock market), stocks were dead money, but gold and oil skyrocketed.

  3. Crisis Insurance: Gold, in particular, acts as "chaos insurance." During wars, pandemics, or currency collapses, investors flee to the safety of hard assets that cannot be printed by a central bank.

  4. Supply Shocks: You can profit from physical realities. If a hurricane destroys sugar crops or a war blocks an oil pipeline, the price of those assets spikes immediately.

Risks and Considerations

  1. Zero Cash Flow: Unlike stocks (dividends) or bonds (interest) or real estate (rent), commodities pay you nothing while you hold them. You only make money if the price goes up.

  2. Extreme Volatility: Commodity prices can swing wildly based on a single weather report or a tweet from a world leader.

  3. No "Intrinsic" Value: A stock has value because the company earns profit. A bar of gold has value only because someone else says it does. There are no earnings reports to analyze.

  4. The "Roll Yield" Problem: Investing through ETFs can be tricky because of how futures contracts work (explained in the Educational Corner).

Building a Commodity Allocation

  1. The Insurance Allocator (5-10%): Most advisors recommend keeping a small slice of a portfolio (5-10%) in gold or broad commodities purely as insurance against disaster.

  2. The Tactical Trader: Buying specific commodities (like Lithium or Uranium) to bet on a specific trend (like the Green Energy transition).

  3. Indirect Exposure: Instead of buying oil, buy Oil Companies (Stocks). This gives you exposure to the price of oil but also provides dividends and avoids some futures market risks.

Investment Ideas for All Budgets

For Small Investors (1 to 100 Dollars)

The Gold ETF (GLD or GLDM) Description: Buying an Exchange Traded Fund that owns physical gold bars sitting in a vault in London. Advantages:

  • Accessibility: You can own a fraction of an ounce of gold for the price of a lunch.

  • Liquidity: You can sell it instantly during market hours, unlike trying to sell a gold coin at a pawn shop.

  • purity: You don't have to worry about testing for fakes; the fund is audited regularly.

Limitations:

  • "Paper" Gold: You don't physically hold the metal. If the financial system completely collapses, you own a claim on a trust, not the metal itself.

  • Expense Ratio: You pay a small annual fee (approx. 0.10% - 0.40%) for the storage and security of the gold.

Implementation:

  • SPDR Gold MiniShares (GLDM): A lower-cost version of the massive GLD fund, perfect for buy-and-hold investors.

  • iShares Silver Trust (SLV): The silver equivalent for those who want a more volatile, industrial metal.

For Medium Investors (101 to 10,000 Dollars)

Diversified Commodity Producers Description: Instead of buying the metal, you buy the miners and drillers. This strategy uses an ETF composed of companies that extract commodities. Advantages:

  • Dividends: Oil majors (like Exxon) and Gold miners (like Newmont) often pay healthy dividends.

  • Leverage: Miners often rise faster than the metal itself. If gold goes up 10%, a gold miner's profit might go up 30% because their costs stay fixed while their revenue jumps.

  • No "Contango" Risk: Since you own stocks, you don't lose money rolling futures contracts.

Limitations:

  • Operational Risk: A mine can collapse, a government can nationalize an oil field, or a CEO can make bad decisions. You take on company risk, not just price risk.

  • Market Correlation: In a general stock market crash, mining stocks will likely fall with the market, even if the price of gold is holding up.

Implementation:

  • VanEck Gold Miners ETF (GDX): The standard for gold mining stocks.

  • Energy Select Sector SPDR (XLE): A basket of the largest US oil and gas companies.

  • Pick & Shovel Play: Global X Lithium & Battery Tech (LIT) for exposure to the electric vehicle supply chain.

For Large Investors (10,000 Dollars and Above)

Physical Bullion & Vaulting Description: Purchasing actual physical bars and coins (Gold, Silver, Platinum) and storing them either in a home safe or a segregated third-party vault. Advantages:

  • Counterparty Risk Free: If you hold it, you own it. There is no bank, fund manager, or government between you and your wealth.

  • Privacy: Physical gold transactions are private (within certain legal limits).

  • Tangibility: There is a psychological security in holding wealth that exists outside the digital financial system.

Limitations:

  • Premiums: You will pay "over spot" price to buy (dealer markup) and receive "under spot" when you sell.

  • Security Costs: You need a high-quality safe or must pay monthly storage fees to a vaulting service.

  • Illiquidity: You cannot click a button to sell. You must mail it to a dealer or walk into a shop.

Implementation:

  • Buy Online: Use reputable dealers like APMEX or JM Bullion.

  • What to Buy: Stick to sovereign coins like the American Eagle, Canadian Maple Leaf, or South African Krugerrand. These are recognizable worldwide and easier to sell than generic bars.

  • Storage: For amounts over $50k, consider a private non-bank vault (e.g., Brinks or specialized depositories) to keep the assets geographically diversified.

Educational Corner: The "Roll Yield" Trap (Contango Explained)

Many investors get burned buying Commodity ETFs (like a Natural Gas or Oil ETF) because they don't understand Futures Contracts.

Most commodity ETFs do not own the physical stuff (it's hard to store a million barrels of oil). Instead, they buy "Futures Contracts" that expire next month.

The Problem (Contango): When the contract is about to expire, the fund must sell it and buy the next month's contract to stay invested.

  • Often, the future price is higher than the current price (this situation is called Contango).

  • Example: The fund sells the expiring contract for $50 and buys the next month's contract for $52.

  • They just lost $2 per share, or 4%, just to maintain the position.

The Result: Even if the price of oil stays flat for a year, the ETF can lose 20-30% of its value simply from the cost of constantly buying more expensive future contracts. Warning: Be very careful holding futures-based ETFs for the long term.

Did You Know?

The Gold Standard—the system where every dollar was backed by physical gold—was abandoned by the United States in 1971.

Before this "Nixon Shock," a US Dollar was essentially a receipt for a specific amount of gold held at Fort Knox. Since 1971, the world has operated on "Fiat Currency" (money backed only by government decree). Since the link was severed:

  • The price of Gold has moved from $35/oz to over $2,000/oz.

  • The purchasing power of the US Dollar has declined by over 85%.

This is why many investors call gold the "only real money"—it has maintained its purchasing power for 5,000 years, while paper currencies tend to fade away over time.

That concludes this article of How to Invest. Commodities and Precious Metals serve as the "hard" anchor in a "soft" digital world. While they don't produce cash flow, their ability to protect purchasing power and perform when everything else is crashing makes them a unique tool in portfolio construction. Whether you buy a gold ETF for insurance or copper miners for growth, remember that in this asset class, you are betting on the physical limits of our planet.