Asset Class

Commodities

Commodities are hard assets: energy, metals, agriculture. They do not produce cash flows. They are priced entirely on the friction of supply and demand, and accessing them introduces structural costs.

The Friction of Access

Unlike equities or bonds, you cannot easily hold physical commodities. If you want exposure to crude oil, you do not buy barrels; you buy futures contracts. This introduces the mechanics of the futures curve.

Contango & Roll Yield

Futures contracts expire. To maintain a position, a fund must sell the expiring contract and buy the next one (rolling the contract).

When the market is in Contango, the future price is higher than the spot price (often due to the cost of storage and insurance). When you roll, you sell low and buy high. This creates a negative roll yield, meaning an ETF tracking oil can lose money over a year even if the spot price of oil goes up.

Backwardation

The inverse of contango. The spot price is higher than the futures price, usually due to an immediate supply shock. Rolling the contract here generates a positive roll yield.

Why Hold Them?

Commodities are one of the few asset classes that exhibit positive correlation with unexpected inflation. When supply shocks hit (e.g., wars, pandemics), equities and bonds often suffer simultaneously. Commodities act as a structural hedge against fiat debasement and geopolitical chaos.

Gold vs. Industrial Metals

Asset	Primary Driver	Storage Cost	Role in Portfolio
Gold	Real interest rates, fiat debasement	High (physical) / Low (GLD ETF)	Safe haven, zero-counterparty risk asset
Copper	Global industrial growth, electrification	High	Cyclical growth proxy ("Dr. Copper")
Crude Oil	Geopolitics, GDP growth	Very High	Inflation hedge, geopolitical hedge

Contango Drag Estimator

Estimate how much capital is destroyed by negative roll yield in a commodity ETF over time.

Initial Investment ($)

Assumed Spot Return (%)

Annualized Roll Drag (%) Negative number indicates contango (costing you money).

Years Held

FAQ

Are commodity ETFs a good long-term hold?
Generally, no. Due to contango drag and high expense ratios, broad commodity ETFs (like USO for oil) are tactical trading vehicles, not buy-and-hold investments.

What are Managed Futures / CTAs?
Commodity Trading Advisors. These are hedge funds that use trend-following algorithms to trade futures across commodities, currencies, and bonds. They thrive on volatility and trend continuation.