An analysis of commodity markets: what gain for investors?

In this paper we study whether the commodity futures market predicts the commodity spot market. Using historical daily data on four commodities-oil, gold, platinum, and silver-we find that they do. We then show how investors can use this information on the futures market to devise trading strategies and make profits. In particular, dynamic trading strategies based on a mean-variance investor framework produce somewhat different results compared with those based on technical trading rules. Dynamic trading strategies suggest that all commodities are profitable and profits are dependent on structural breaks. The most recent global financial crisis marked a period in which commodity profits were the weakest.