One of the most striking things about commodities, irrespective of their type, is that they are very crucial to our survival and existence. Be it fuel, grains or metals, we all need and are influenced by commodities. If the price of crude oil increases by a single dollar, billions of people across the globe are affected instantly. The same happens when the price of soybean on the global market plunges or rises. Commodities are that important.
That said, it is also interesting to state that commodities are a very reliable form of investment. This can be done on a short, medium or long-term basis. Commodities can also be very handy during unstable economic times. This is because commodities often perform in the opposite direction to the conventional stocks.
History of Commodities Trading
Trading in commodities is not a new enterprise at all. In fact, it has been with us for thousands of years. Ancient civilizations from Africa to Asia to Europe all engaged in the trading of commodities such as salt, spices, ivory, cowries and so on. Commodity trading was and still remains a very important aspect of the global economy.
As a matter of fact, it has been shown over time that the wealth, prosperity and power possessed and wielded by different countries all depend on the strengths they have on the global commodity trading platform. Great Britain in the 20th century and China of today are very good examples in this regard.
Features of the Commodities Market
Like other markets, the one for commodity trading is also governed by the fundamental principles of economics. That means that whenever there is a decrease in supply, there will be a rise in the demand and this will trigger a rise in the price. On the other hand, if there is an increase in supply, the demand will plunge and the same happens to the price too.
In cases where there are severe problems, for instance, an outbreak of the disease on cattle farms, the demand for livestock can become remarkably higher than normal. There are other factors that can also influence what goes on in the world of commodity trading. Geopolitical changes like the increasing dominance of China on a global scale have reduced the amount of steel in global circulation. Rapid changes in technology can also have noticeable changes in the prices of commodities.
There are several commodities exchanges in different parts of the globe. However, some of them have formed partnerships with others and most of them actually focus on one item or commodity. A good example is the London Metal Exchange whose area of interest is just metal commodities and nothing else. The United States of America is another country that has a number of influential commodities exchanges like the Atlanta-based Intercontinental Exchange.
For those who want to take part in the transactions on these exchanges, there are rules and standards to follow. In fact, these standards are so stringent that they are always adhered to. No one will like to make payment for commodities only to realize later that what was bought was not original. On all commodities exchanges, quality, excellence, and reliability are highly-cherished values.
Kinds of Investment Commodities
In the global market, investors have an array of sections of commodities that they can invest in. Overall, there are four kinds of investment commodities. These include the following:
- Energy: These include natural gas, crude oil, gasoline, heating oil, and other petroleum products.
- Agricultural Produce: These include grains like rice, corn, wheat, soybeans or products like sugar. Others include cash crops like coffee, cocoa, and cotton.
- Metals: These often include precious metals like platinum, gold, and silver. Whenever the market becomes unstable, it is common to see more investors focus on the precious metals section of commodity trading with many preferring to go for gold. Gold is very good at combating the effects of increasing inflation and currency devaluation.
- Livestock and Meat: These include live cattle, pork bellies, hogs and so on.
Trading in commodities often are the preferred ways for millionaires, as they are a lot safer from manipulations and all such tricky stuff. However, with right approach and knowledge, it is fruitful for just about everyone.