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What do the Best Investors Think About Commodities Markets?
Are oil and gold ever an acceptable investment?
Commodities themselves will only hurt you from making any reasonable gains on the market. Earlier this year, we saw crude oil futures contracts reach severely negative values. They were paying people to take the contracts off their hands.
The reason why this occurred on April 20th is because the 20th (sometimes 21st) of each month is what’s known as the settlement date of that month. This means that the paper contracts people are trading for what they perceive is the value of oil is going to be actualized. Another way you can think of this is moving from an unrealized valuation of oil to a realized value.
On that day, in the middle of a global pandemic, nobody wanted to take order of oil barrels. This phenomenon is sparked by the panic in the shops who speculate on these contracts with no intention of ever taking delivery of the oil. When it came closer to the settlement date, that month’s oil contracts simply crashed, meaning that people would get paid to take delivery of oil (after transportation and storage and all other associated costs).
