Commodity investing has recently become increasingly popular as the exchange traded world has opened this once elusive asset class wide open. Still, one of the most effective ways to maintain exposure to your favorite hard asset remains through futures contracts. In the yesteryears, for the average investor, futures were typically too complex due to the fact that they were termed as extremely dangerous, hard to understand, and required a specified account just to trade them. But this notion has changed over the years, with knowledgeable investors working the facts in predicting the price levels in the coming days. For these investors, investing in the futures remains the most direct and potentially most profitable way to make a mark in the commodity space.

When it comes to futures investing, many traders are unsure where to begin. Unlike equities, the contracts are spread over the months, as opposed to two or three that completely dominates the market. Futures investors need to keep themselves educated on the various contracts with special attention to the specifications. Below we outline five of the most popular commodity future exchanges in the world.

• Chicago Mercantile Exchange (CME): A financial and commodity derivatives trading platform headquartered in Chicago, CME offers contracts of all kinds including agriculture, credit, economic events, equity index, FX and interest rates.
• Chicago Board of Trade (CBOT): Established in 1848, the CBOT ranks as the oldest futures exchanges in the world. The exchange offers more than 50 different futures contracts for investment across a number of asset classes. As of 2007, the CBOT operates as a subsidiary of the CME group.
• New York Mercantile Exchange (NYMEX): The NYMEX is the world’s largest physical commodity futures exchange, offering exposure to a wide variety of products. COMEX also operates as a division of the NYMEX. The two divisions joined in late 2006, and were acquired by the CME group in early 2008.
• London Metal Exchange (LME): Stationed in the United Kingdom, the LME is a major exchange that offers exposure to futures to a wide variety of base metals and other commodities. Though founded in 1877, the exchange can trace its roots all the way back to 1571, when the Royal Exchange in London was opened, only trading copper at its origins.
• Intercontinental Exchange Inc. (ICE): The ICE is a US based company that operates futures and OTC contracts via internet marketplace.

Have a great weekend everyone!

Of late, one particular news that has been catching intense media speculation is the IPO of Facebook. The social networking site’s IPO has been dubbed by many to be the biggest in the history. However this may not be the case as Facebook filed for only $5 billion initial public offering on Wednesday.

Listed below are some of the largest IPO in history:

10: Bank of China: The Bank of China s one of the four biggest financial powerhouses in China. It is not even listed on a major U.S. exchange, but it’s IPO on 24^th May, 2006 topped $11.2 billion.

9: Deutsche Telekom: The German telecom company, which was at that time, the third largest in the world, offered stocks elsewhere and not on major U.S. exchanges. Proceeds from the IPO on 17^th, November 1996 topped $12.5 billion.

8: Nippon Telegraph and Telephone:

When this Japanese telecom giant went for IPO on 9^th February 1987, it managed to raise $15.301 billion. It was listed on the Japanese exchanges during that time but later added listings in New York and London.

7: Enel:

Ente Nazionale per L’Energie Elettrica, also known as Enel is Italy’s largest power company. Proceeds from the 1999 IPO totaled $16.6 billion. The company has never been listed on U.S. exchanges.

6: NTT DoCoMo

NTT DoCoMo is a Japanese mobile phone giant which went for IPO on 22^nd October 1998. Proceeds from the IPO totaled $18.1 billion.

5: Visa:

The first American company on the list, Visa raised $19.7 billion with its IPO on 18^th, March 2008. The company was also the last big IPO before the market for public offerings went into hibernation mode as a result of the financial crisis.

4: American International Assurance:

The Asian life insurance arm of AIG (American International Group), AIA is based in Hong Kong. The proceeds of the AIA IPO were $20.5 billion when it went for IPO on 21^st, October 2010.

 3: Industrial and Commercial Bank of China:

The largest bank in China, the ICBS floated its shares on the Hong Kong and Shanghai exchanges in 20^th, October 2006. The IPO of this bank raised $21 billion through simultaneous listings on both the Hong Kong Stock Exchange and Shanghai Stock Exchange.

 2: Agricultural Bank of China:

The third largest bank in China, the Beijing based Agricultural Bank of China raised $22.1 billion in proceeds from the IPO on 7^th July, 2010

 And the winner is …………

 1: General Motors:

General Motors filed for its public offering in August 2010. It raised $23.1 billion through the proceeds of its IPO.

The US Dollar had enjoyed a significant rally since the middle of last year, partly due to the debt crisis escalating in Europe, taking the problems of the dollar out of the headlines. However, there are plenty of good reasons to believe that this rally is soon coming to an end as the dollar is back under attack again. Firstly, Iran and India announced that they will start trading crude oil using gold instead of the widely-used dollars. The fall was further accelerated when the Fed announced that it is going to keep the interest rates low until 2014.

The announcement of the Iranian and Indian oil for gold exchange was a direct response to the sanctions put on by the United States and the European Union. The official word has been that Tehran must be punished for its ambitions to develop a nuclear programme. The punishment has been in the form of sanctions against Iran’s oil exports, and now further sanctions against its central bank.

These dreaded sanctions are nothing short of financial warfare. This latest sanctions against Iran’s central bank cause an immediate shortage of dollars, and as a result, the Iranian rial plummeted 40% overnight, causing hyperinflations. But as the saying goes-for every action, there is a reaction-Iran retaliated by announcing that it will use gold as an alternative payment system. India has a large amount of gold and it is willing to trade it in exchange for oil.

These actions taken by Iran and India are not enough to severely damage the dollar. The damage would come if this development becomes a trend and other countries follow suit. It would substantially hurt the dollar if large economies like China and Russia abandon the US Dollar payment system and use the alternative payment methods like gold or other commodities; effectively bringing an end to the dollar as the world’s reserve currency.

Turning the pages of history, the US Dollar has been the only currency used to buy and sell crude oil since the early 1970s, and from that monopoly, the US dollar slowly became the reserve currency for global trades of most commodities and other goods. The result was a massive demand for US Dollar, pushing up its value. This gave the US government a vast pool of credit as all foreign countries stored their excess reserves in US Treasuries. However, the constant money printing has slowly eroded the value of the dollar, causing other countries to be more reluctant to store their foreign reserves in US Dollars and also to consider alternative payment methods for settling international trades.

With the US Dollar under attack by the Fed domestically and by foreign nations overseas the dollar will continue to decline in value leading theoretically to an incline in the gold prices.

Note: The blog is just an expression of the author’s opinion and cannot be deemed responsible for any losses incurred.

There are numerous articles which describe the ‘energy problem’ and go on to describe how we can reduce oil imports by building windmills and how natural gas discoveries mean that our energy problems are solved. In reality, there are now two very separate energy markets and a misunderstanding of their relationship can lead to disastrous investment consequences.

When we turn the pages of time to the 1970s, there was a rule of thumb then that the ratio between the price of a barrel of oil and a thousand cubic feet of natural gas should be roughly 10 to 1. Oil and natural gas were substitutes for many applications in the energy sectors (including the generation of electricity and space heating) and, if prices diverged from the ratio significantly, the less expensive fuel would be substituted for the more expensive fuel and the prices would finally move back to the 10 to 1 ratio.

Over the next two decades, natural gas gradually displaced oil in more and more of these shared markets. In the United States, there is very little use of oil to generate electricity. Natural gas has also replaced oil as a heating fuel in many markets and the markets where oil is still used are generally markets in which it would be expensive to build the infrastructure necessary to get gas into the markets.

As a result, the ratio no longer holds. In recent years, the ratio has moved up to the 25-30 to 1 level, making oil much more expensive than its counterpart on a British Thermal Unit (BTU) equivalent basis. In the past months, the ratio has climbed to levels near 40 to 1. We have lots of cheap gas, but it doesn’t make oil any cheaper at all.

As the price gap between the two energy commodities to increase, the economic benefits of substituting natural gas for oil become greater and greater. Since oil is used almost exclusively in the transportation sector, this substitution will have to take the form of using natural gas, directly or indirectly as a transportation fuel.

Analysts have also pointed out that there are other opportunities to displace oil-especially outside the USA. In places where oil is still used to burn the midnight oil, it is difficult to replace the existing commodity immediately as it will take years to modify the system in which the energy is utilized. But as the years are added to life, a day may come whereby natural gas would be supplied to our homes to meet our energy requirements. We will be await that day!

After a weekend of fun and spoils, yours truly is back amongst the midst of writing the blog. Being an ardent Manchester United fan, I was saddened by the defeat in the FA Cup in the hands of a resurgent Liverpool team. Nevertheless, we will surely give Manchester City a run for their money for the title in the Barclays Premier League. The recently concluded Australian Open witnessed one of the greatest matches in the history of the sport as Novak Djokovic pulled off a dramatic victory against Rafael Nadal in a five-set thriller. The longest finals match, saw both players breaking sweat aplenty as the match swung like a pendulum with each player leaving no stones unturned in the quest for attaining the recognition of a champion. As the sports-packed weekend grinded to a halt, investors are back amongst the mix of watching the markets. Year 2012, will be highlighted due to the answer to an important question-Will Gold break $2000?

As we assess government and central bank responses to the global sovereign debt crisis, investors remain upbeat on gold breaking $2000 in 2012. Global central banks are in a race to debase their respective currencies in order to export their way out of the crisis. The world is suffering from an aggregate demand problem, which is being ably supported by the austerity measures in the developed world. While the timing is yet to be finalized, QE3 seems inevitable as the recovery remains weak. Unemployment lingers at elevated levels and 2012 will be likely met with reductions in government spending. Economists’ view that gold remains a strong alternative as the US Dollar debases long term.

Gold is difficult to value as it earns but yields nothing. Many gold bulls point to the US monetary base as a guiding post for valuing the inert asses. Economists’ view that monetary base will only grow as the US faces a very weak economy coupled with large debt loads. This growth in the monetary base will provide impetus to the gold prices. The first and the second edition of the QE, which lasted for 15 months and 8 months respectively, saw gold prices rise by 36% and 21% respectively. In that regards, gold would only have to increase approximately 15% this year to finally break the magical figure of $2000 per ounce. The long-term trend is still very strong in Gold and investors believe that $2000 is a foregone conclusion.

Note: The blog is just an expression of the author’s opinion and cannot be deemed responsible for any losses incurred.