Understanding Commodity Futures: Role, Risks, and Market Dynamics

In recent years, the popularity of commodities investment has surged, particularly in the use of commodity futures as a tool for portfolio diversification and speculation. Imagine you are advising an investment committee on the merits and risks associated with investing in commodity futures.

In your essay, discuss the fundamental characteristics of commodity futures, their role in an investment portfolio, and the specific risks involved with this type of investment. Additionally, illustrate your points with examples of how various market conditions might influence the valuation of commodity futures.