Commodities are the fundamental building blocks of the world economy. They’re the physical goods that are used directly by both consumers and industries to produce other consumer goods. There are several types of commodities, including:
- Energy (crude oil, heating oil and natural gas)
- Metals (gold, silver and copper)
- Agriculture (corn, wheat, rice, etc.)
- Softs (cocoa, coffee, sugar, etc.)
Commodity prices will be affected by a wide range of factors, including:
- Supply and demand
- Weather and geographical events
- Economic and political factors
- The value of the U.S. dollar (the majority of commodity prices are denominated in USD)
These products tend to be homogeneous in nature and play a fundamental role in the economy. Volatility can often be seen to increase whenever there are disruptions around the globe, such as with social or political unrest, or unusual weather conditions.
Commodities like gold are popular with investors as they have long been considered a store of value and therefore, a “safe haven”. These safe-haven assets have historically held their value during times of economic and political uncertainty.