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Investing in Commodities, Tip 4: China Can Make or Break You


The world's second largest economy carries a lot of sway over commodity prices.

There are a number of different factors that can influence commodity prices, ranging from supply disruptions, the strength of the US dollar, and technological developments. And then there's China, the driving force behind the global economy at present and a major consumer of everything from crude oil to soybeans.

China is in the midst of a massive shift in demographics; the middle class is swelling, and more and more Chinese are moving from rural areas into the cities. That is leading to a surge in demand for all types of commodities, including copper needed in construction, platinum needed in automobiles, and corn and beef needed for higher quality diets. Given the massive size of China and its relative lack of home grown natural resources, the country has become one of the largest buyers for a wide range of commodities. In other words, China's appetite for raw materials can go a long ways towards determining the supply/demand outlook for a commodity.

The "China factor" is certainly a net positive for commodity prices; the trends playing out there give support to commodity prices over the long haul. But over shorter periods of time, China can swing prices in either direction. News of a slowdown in China can pinch copper prices, as demand for new buildings there dwindles. If Chinese GDP growth comes in lighter than expected, it could weigh on soybean prices.

Bottom Line: The world's second largest economy carries a lot of sway over commodity prices; China's ups and downs often ripple through markets.

Tip 1: Futures Do Not Equal Spot

Tip 2: Commodities and Investments Can Align

Tip 3: Watch Your Tax Rates

Tip 5: Low Inventories Can Lead to Backwardation

Tip 6: Diversification Is Not a Given

Tip 7: Rolling Front Month Futures Is a Recipe for Disaster

Tip 8: More Than Just Energy and Gold

Tip 9: Watch Out for That K-1!

Tip 10: Consider Expenses Always

Tip 11: Commodity Exposure Through Stocks: Pros & Cons

Tip 12: Know What You're Getting Into

Tip 13: Consider Physical Exposure

Tip 14: Commodity ETFs: Structure Matters

Tip 15: Bigger Does Not Mean Better

Tip 16: Commodity ETFs Get a Bad Rap

Tip 17: Beware the Dollar's Impact

Tip 18: Not All Commodities Are Created Equal

Tip 19: Know Your Geography

Tip 20: Be Mindful of Your Timing

Tip 21: Platinum and Palladium Are the Other Precious Metals

Tip 22: Consider the COT Report

Tip 23: Remember That You Also Have Options

Tip 24: NAGS Vs. UNG -- Different Tools for Different Objectives

Tip 25: Free Resources Can Make Your Life Easier

Follow us on Twitter @CommodityHQ!

Editor's note: This article by Jared Cummans was originally published on Commodity HQ.
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