What Are Commodities?
Commodities are natural products that have been traded for thousands of years and have always had a pivotal economic impact on people and countries throughout history. Today commodity trading is just as integral, with commodities playing a vital role in universal economics. It is quite simple to understand the impact that commodities have, more so than other financial instruments. For example, they reflect industries such as farming, the oil business and mining.
Types of Commodities
- Metals-Hard Commodities
Hard commodities, specifically metals such as gold, silver, copper and platinum are extracted via mining.
- Agricultural – Soft Commodities
Soft commodities are usually agricultural commodities that are grown for human consumption. Examples include wheat, coffee and corn.
Energy commodities, which include crude oil and natural gas are pumped out of the ground and have a particularly strong economic and political impact on the global economy.
What Moves the Commodity Markets?
Commodity markets can be influenced by many factors including:
- Inventories and stocks
- Currency flactuations
- Supply interruptions, such as underwhelming harvests, strikes, wars or under-stockpiling
- Periodic demand, for example people generally consume more heating oil and natural gas in the winter. Additionally, individuals typically purchase gold when there is political uncertainty.
- General economic slowdowns, which can impact demand. Oil and wheat are particularly sensitive to this.
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- Global opportunities – Trade gold, silver and oil with competitive spreads
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