Commodity correction…

After a massive sell-off in commodities last week, volatility is still rampant in the sector. Let’s take a look at the PowerShares DB Commodity Index (NYSEArca: DBC) chart. This index tracks the likes of Oil, Natural Gas, Gold, Silver, Corn and Wheat, just to name a few. As you can see in the chart, over the past six months or so this index fund has gained over 30%, however, just over the past week or so the DBC has given back over 10% of those gains. Even more impressive out of this basket of commodities is Silver. Silver (NYSEArca: SLV) chart has given back  a whopping 33% of its historic run. Has the underlying fundamentals of the commodity space changed so much in the last week or so?

As long as we continue to see growth in developing countries and the global printing presses remain on, I would expect that this correction is healthy for the space and is needed in order to resume its powerful uptrend. Here is the catch and a few prerequisites should you choose to enter or re-enter the sector: 1. You must have a strong stomach to endure the volatility that is inherent in commodities. 2. You must have a higher risk tolerance than most. 3. You must limit your losses should you enter this space and the trade goes against you in a meaningful way. Of course these are only a few disciplines one should adhere to when investing in any market and also one should always seek the counsel of a professional investment advisor before consideration.

Have a good evening.