What are Commodities?

Commodities refer to essential raw materials utilized in the production of various goods, ranging from agricultural products to mineral ores and fossil fuels. They serve as the foundational elements of the global economy, playing a vital role in the creation of everyday products we rely upon. In financial markets, commodities are tangible assets traded in dedicated markets, distinguishing them from securities like stocks and bonds, which exist purely as financial instruments.

Types of commodities

Commodities can generally be divided into three main categories:

Metal commodities are commonlyused in manufacturing andconstruction. Some metals,such as gold and silver, are alsoused in jewelry and for investment purposes. Examples of metalcommodities include: Gold, Silver, Platinum, Copper, Nickel, Aluminum, Palladium
Energy commodities play a crucialrole in keeping the global economyticking over. Without energy, we wouldbe unable to transport people andgoods across the world, powerfactories, or heat our homes. Examplesof energy commodities include: Oil and Natural Gas
Agricultural commodities are cropsand animals that are grown or raisedon farmland. Most agricultural commodities are used to producefood, however, some have industrialuses. 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,”

Ryan Giannotto, chartered financial analyst (CFA) and director of research at GraniteShares, an ETF issuer based in New York City.