When we think of investing most all of us think of the traditional stocks and bonds. However, there are markets in many different commodities. Some of these commodities include gold, silver, oil, sugar, and platinum. More and more investors are discovering that there is real money to be made in the commodities markets and there are advantages in commodities over stocks.
For our purposes, we are going to look at the platinum market as an example of how you can make money in these markets.
A commodities market like the platinum market is perhaps the purest form of capitalism ever invented. You are literally trading some of your investment dollars for a certain amount of platinum. The amount that you receive for your investment is based on the current market price of platinum. The market determines the price through a number of factors that all relate back to supply and demand.
Simply put, on days of high demand for platinum the price of the commodity will increase. This means that those who own some platinum prior to the demand increase stand to make a profit if they decide to sell at the new market price. To make this a little more simple to understand, lets use an example.
You are a newly minted platinum investor just starting out in this part of the investment world. You have $15,000 to invest and you invest it all in platinum on a single day. Let’s assume that you purchase your platinum at a price of $1500 per ounce (an approximate price based on today’s standards). At that price you have purchased 10 ounces of platinum. Although you will never actually receive the material itself, you own those 10 ounces on paper.
Lets now assume that you decide to hold your platinum for 3 months without buying or selling any more. Each day that the market is open the price of platinum will move up or down, but you have decided not to worry with it until 3 months are up. At the end of the 3 months you look up the trading price of platinum and notice that it has increased to $1600 per ounce. You then decide to sell your 10 ounces at that price. This brings in $16,000 for you, or a $1,000 profit.
While this is a simplified example of how the commodities markets work, it shows the point that they work in a similar way to the stock market, but instead of buying part of a company, you are trusting your money to an actual commodity that always has some value.
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