Commodity investing is tricky
There are a lot of exchange-traded funds out there that have commodities as their primary asset. I would not “invest” in any of them, although they are perfectly good trading instruments if you don’t want to dabble directly in the future exchanges.
Some person wrote a simple article explaining why correlation to these exchange-traded funds is not perfect. Keep in mind that the natural gas fund invests in futures, opposed to the physical product. Apparently the gold ETF (37 billion in assets and rising) has it in physical product.
All of these ETFs make a fortune by skimming a fraction of a percent in management fees – the Gold ETF takes 0.4% a year, while the natural gas ETF takes 0.6% a year.
I suspect most of the slippage of the ETF is due to traders sniping away at the funds that try to roll over the future contracts – without having the outlet of taking delivery it makes it incredibly difficult to keep a front-end position without encountering significant slippage – and this shows in the performance of the fund.
In the case of gold, if you want to invest in it for the long run, you would be better off buying the physical metal and storing it in a safety deposit box or some other secured location. For natural gas and crude oil, your best bet would be to invest in companies that have large, proven reserves of oil or gas. There are quite a few companies in Canada that would easily fit the description.
My commodity of choice is crude oil – as long as sustainable fusion doesn’t get invented anytime soon, crude oil continues to be the most convenient and economical source of energy. Crude oil is very useful, unlike gold. It is also unlikely that we will be gravitating away from gasoline over the next 30 years as the primary fuel for transportation.