Commodities

Exciting, important and tangible.

Commodities effect our everyday lives, from the price of gas to the quality of the next meal, any trader who trades in commodities is allocating a part of his investment portfolio to everyday essentials.

What are commodities?

A commodity is a basic good that is used in commerce, that comes from the natural world, for example grains, minerals or oil.   There are both soft and hard commodities, soft represents commodities that are grown and hard are extracted from the earth.

Commodities are a type of asset, in the same way as stocks, bonds, or real estate. They are mostly bought by corporations that need them to operate; for example, an airline may buy oil to hedge against high prices.   

Types of Commodities

Today, tradable commodities fall into the following four categories:

  • Metals (such as gold, silverplatinum and copper)

  • Energy (such as crude oil, heating oil, natural gas and gasoline)

  • Livestock and Meat (including lean hogs, pork bellies, live cattle and feeder cattle)

  • Agricultural (including corn, soybeans, wheat, rice, cocoa, coffee, cotton and sugar)

 

At AKGM we trade

                            Gold | Silver| Coffee| Oil | Soybean | Platinum | Aluminum

 

Investment traits of Commodities

 

The basic economic principles of supply and demand  are pivotal when discussing the commodities markets:

 

  • Lower supply drives up demand = higher prices

  • Higher supply plunges the demand = lower prices

  • Supply crises such as health scares, soybean droughts effect prices.

  • As for demand, global economic expansion and technological developments often have a less dramatic, but significant effect on prices.

 

Standards of trading Commodities.

When traded on an exchange, commodities must meet specified minimum standards, also known as a basis grade. 

There must be little differentiation between a commodity coming from one producer and the same commodity from another producer.

 An example:

A barrel of oil is basically the same product, regardless of the producer. By contrast, for electronics commodities, the quality and features of a given product may be completely different depending on the producer.

A sign of the times

Some traditional examples of commodities include grains, gold, beef, oil, and natural gas. Technological advances have also led to new types of commodities being exchanged in the marketplace. For example, cell phone minutes and bandwidth.

 

The exchanges:

Where to Invest Commodities

London Metal Exchange : This exchange only carries metal commodities

The C.M.E. Group in the U.S., an amalgamation of the Chicago Mercantile Exchange and Chicago Board of Trade in 2006

New York Mercantile Exchange 

Intercontinental Exchange in Atlanta and the Kansas City Board of Trade.

Commodity Tips:

  • Bearish stock markets typically see investors transferring funds to precious metals with conveyable value.

  • Precious metals can also be used to hedge against high inflation or periods of currency devaluation.

  • Global economic changes and reductions in oil output can produce surges in oil prices.

  • Agricultural products have an active trading market and are volatile in extreme weather conditions.

 

 

 

 

 

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