Commodities

Marcelo Serafim
Apr 18, 2023
2 min read

Commodities are raw materials or primary agricultural products that can be bought and sold, such as oil, gold, and wheat. They are often traded on commodities markets, where buyers and sellers can enter into contracts to buy or sell a specific quantity of a commodity at a certain price.

One of the key features of commodities is that they are often fungible, meaning that one unit of a commodity is interchangeable with another unit of the same commodity. For example, one barrel of oil is the same as any other barrel of oil, regardless of where it was produced or who produced it.

Commodities can be classified as hard commodities or soft commodities.

Hard commodities are natural resources that are extracted from the earth, such as oil, gas, gold, and silver. Soft commodities, on the other hand, are agricultural products that are grown, such as wheat, corn, and soybeans.

Commodities are often used as a hedge against inflation or economic instability, as their prices can be influenced by a variety of factors, including supply and demand, geopolitical events, and changes in currency exchange rates. For example, if there is a shortage of oil due to political instability in an oil-producing region, the price of oil may rise.

However, investing in commodities can also be risky, as prices can be volatile and subject to sudden fluctuations. In addition, commodities can be affected by weather conditions, pests, and other factors that can affect the supply and demand for a particular commodity.

Vocabulary:

Fungible - interchangeable
Geopolitical - relating to politics and geography, especially international relations
Inflation - a sustained increase in the general price level of goods and services in an economy over a period of time
Volatile - liable to change rapidly and unpredictably, especially for the worse
Fluctuation - a rapid and irregular variation