What are Commodities?
Commodities are raw materials that are used to produce more complex goods, including agricultural products, mineral ores and fossil fuels. You can think of commodities as the building blocks of the global economy – they’re used to create products that we rely on every day. In terms of financial markets, commodities are physical goods that are bought, sold and traded in markets, distinct from securities such as stocks and bonds that exist only as financial contracts.
Types of commodities
Commodities can generally be divided into three main categories:
Metal commodities are commonly
used in manufacturing and
construction. Some metals,
such as gold and silver, are also
used in jewelry and for investment purposes. Examples of metal
commodities include: Gold, Silver, Platinum, Copper, Nickel, Aluminum, Palladium
Energy commodities play a crucial
role in keeping the global economy
ticking over. Without energy, we would
be unable to transport people and
goods across the world, power
factories, or heat our homes. Examples
of energy commodities include: Oil and Natural Gas
Agricultural commodities are crops
and animals that are grown or raised
on farmland. Most agricultural commodities are used to produce
food, however, some have industrial
uses. Examples of agricultural commodities include: Sugar, Cotton, Cocoa, Wheat
What drives commodity prices?
Investors in the commodity market aim to profit from supply and demand trends or reduce risk through diversification by adding different asset classes to their portfolios. **
“The real advantages to commodity trading are differentiated exposures from the stock market and the potential for inflation protection,”
says Ryan Giannotto, chartered financial analyst (CFA) and director of research at GraniteShares, an ETF issuer based in New York City.