Evaluating Commodity Futures in Investment Portfolios

As an investment analyst at a leading asset management firm, you are tasked with evaluating the potential use of commodity futures in a diversified investment portfolio.

Your firm is particularly interested in the implications of using futures contracts to gain exposure to different commodities, including energy, agriculture, and metals. In your analysis, you need to discuss the following aspects:

• The benefits and risks associated with investing in commodity futures.
• The impact of contango and backwardation on futures pricing and how this affects investment decision making.
• Consideration of how macroeconomic factors, such as inflation, interest rates, and currency fluctuations, influence commodity futures markets.
• Specific examples of timing market entry and exit points for futures contracts based on historical price movements of a selected commodity.

Your response should provide a coherent analysis with supporting arguments that demonstrate a thorough understanding of commodity futures as an alternative investment.