Commodities are naturally occurring materials or goods that are collected and processed for use in human activity, such as oil, sugar, and precious metals
. They can be divided into two main categories:
- Hard commodities : These are natural resources that are mined or extracted from the earth, such as gold, oil, copper, and natural gas
- Soft commodities : These are goods that are grown and harvested, such as coffee, wheat, and lumber, or reared, like hogs and cattle
Commodities are often used as inputs in the production of other goods or services and are typically interchangeable with other goods of the same type, regardless of the producer
. They can be bought and sold on specialized exchanges as financial assets, and there are also well-developed derivatives markets where contracts on commodities can be bought for forwards, futures, and options
. Some examples of commodities include:
- Precious metals: Gold, silver, platinum, and palladium
- Industrial metals: Aluminum, nickel, zinc, copper, and lead
- Energy: Crude oil, heating oil, natural gas, gasoline
- Agriculture: Corn, soybeans, wheat, rice, cocoa, coffee, cotton, and sugar
- Livestock: Lean hogs, live cattle, and feeder cattle
Commodity prices are determined by various factors, such as supply and demand, geopolitical events, and economic conditions
. Investing in commodities can be done through direct ownership of the commodities, commodity-linked stocks, or commodity futures contracts
