Investing in commodities may be a good idea if you are bearish on the dollar or think demand will increase for a specific commodity. This allows an investor to make money as the price of commodities goes up over time.

However what is a commodity? A commodity is something that has a demand, usually has a limited supply and is sold through multiple different companies. So, gold, water, corn, and livestock would all be considered commodities.

Now that you have an idea about what a commodity is, let’s look at how do I invest in commodities? There are basically three different methods you could use to invest into the commodity market.

1. Buy them

The easiest way is to simply go out and buy the individual commodity. For example if you believe the price of silver is going to go up you could always buy some silver and sell it when the price gets higher. This does come with a few big problems however..

2. Buy Futures

A much better idea is to buy a few future contracts for silver. By buying futures you are buying a lot of silver, only the delivery date may be many months into the future. So while you would not actually own any silver you would own the contract giving you control of silver at some point in the future.

As silver increases so does the price of the future contract you own. If you do not wish to obtain the silver you could always sell the futures contract before it comes due.

3. Buy ETFs

One other way to invest into a commodity is to buy an ETF. Commodity ETFs either invest into companies producing the commodity or the ETF will hold the commodity itself. These ETFs will reflect the changes in price of the actual commodity.

So instead of buying a futures contract or buying the actual commodity an investor can simply buy an ETF and hold onto it for the long term.