Understanding what commodities are is the key to seizing new investment opportunities

Why Are Global Investors Optimistic About Commodities?

In the world of asset allocation, commodities are quietly changing the game. As an important asset class alongside stocks and bonds, commodities have inherent advantages: ample liquidity, a strong correlation with economic cycles, and clear, measurable price volatility. Simply put, commodity prices are like a mirror that accurately reflects the true state of the global economy.

Many investors allocate to commodities because of this—once you understand the economic cycle and supply-demand dynamics, you hold the key to price prediction.

What Are Commodities? Understanding from the Industry Chain Perspective

What are commodities? In simple terms: bulk quantities, high liquidity, possessing commodity attributes, used in industrial production and consumption.

The biggest difference from retail goods is the word “large”—large supply, large demand, high circulation, and substantial inventories. Because of this “large,” they often control the upstream of the entire industry chain, where a small change can affect the whole system.

What types of commodities are included?

The classification system for commodities is quite comprehensive, mainly including:

Energy: Crude oil, gasoline, fuel oil, natural gas, electricity. Among these, crude oil is known as the “King of Commodities”—it has the largest supply and demand scale, with downstream applications permeating every aspect of daily life. From plastic food packaging, clothing fabrics (PTA), construction pipes (PVC), to daily transportation fuels, the influence of crude oil is everywhere.

Industrial Metals: Copper, aluminum, lead, zinc, iron ore. These are the lifeblood of industrial production, directly reflecting the health of the global manufacturing sector.

Precious Metals: Gold, silver, palladium, platinum. They are “precious”—high unit value, almost imperishable and non-depreciable, thus serving multiple functions such as store of value, hedging, and safe haven.

Agricultural Products: Soybeans, corn, wheat, and other globally cultivated grains.

Soft Commodities: Sugar, cotton, coffee, and other non-agricultural mineral products.

Livestock: Pork, beef, and other animal proteins.

What Kind of Investment Targets Are Commodities? How to Choose?

Not all commodities are worth investing in. For example, electricity futures, despite huge supply and demand, are geographically limited, with severe price differentiation, making them impractical for most investors. So, what makes a commodity an ideal investment target?

Six Conditions for High-Quality Commodities

1. Sufficient Market Liquidity

This is a basic requirement. Adequate trading volume ensures proper market pricing, leaving little room for price manipulation. Mainstream varieties like crude oil, copper, gold, soybeans, and corn meet this condition.

2. Global Uniform Pricing

The commodity should be traded on multiple exchanges worldwide to ensure investors can buy and sell at global market prices. Gold and crude oil are typical examples.

3. Ease of Storage and Transportation

Stable quality, not easily deteriorated due to regional or climatic factors. Metals and grains generally satisfy this condition.

4. High Degree of Standardization

Regardless of where they are produced, quality standards are consistent and recognized by the market. This provides a basis for forward contract pricing.

5. Relatively Stable Demand Side

Long-term, broad rigid demand exists globally. Energy (oil, natural gas) and food (wheat, soybeans) are typical long-term demand commodities.

6. Easy to Analyze and Forecast

Fundamental information is transparent and publicly available, allowing investors to derive price trends based on economic logic rather than relying solely on technical analysis.

When is the best time to invest in commodities?

Based on historical experience, commodity prices tend to rise most strongly when major economies’ business cycles resonate. The global quantitative easing after the 2020 pandemic is a typical example—central banks around the world flooded the market, causing inflationary conditions of “more money than goods,” ultimately leading to a broad and significant rally in commodities.

How to Invest in Commodities: From Beginner to Expert

Derivatives are the Mainstream Choice

For retail investors, direct physical investment (spot trading, mining investments, logistics) has high barriers. Therefore, the core approach is derivatives trading, mainly futures and options.

Among these, commodity futures are essential for beginners. Each futures contract has a clear underlying— for example, crude oil futures are based on crude oil as the investment target.

The Core Logic of Futures Investment

First, it’s crucial to identify the contract’s expiration month. Futures prices fundamentally reflect expectations of the spot price at that month. Investors need to forecast the spot price at expiry to make informed decisions.

Second, understand the key factors influencing prices. The main variables affecting commodity futures prices are: macroeconomic cycles, industry supply-side factors, and global demand trends. Studying these is called “fundamental analysis.” Fundamentals determine the direction and magnitude of price movements.

Fundamental + Technical Analysis: The Ultimate Investment Rule

Relying solely on fundamentals is not precise enough. Investors also need technical analysis to confirm entry and exit points and manage risks.

Conversely, technical analysis also requires fundamental guidance. Pure technical indicators cannot tell you how long a trend will last or how big a rally might be. Combining both is the key to successful investment decisions.

Selected Commodity Investment Varieties

Based on multidimensional assessments of liquidity, pricing mechanisms, and fundamental drivers, the following varieties are most worth attention:

Crude oil, copper, aluminum, gold, silver, soybeans, corn, sugar, cotton

These commodities share characteristics such as good liquidity, global pricing, clear and measurable fundamental factors, and regular price volatility. For standardized investors, these are the golden list for entering the commodity market.

Final Advice

What are commodities? Essentially, they are a process of re-pricing the global industrial chain. By participating in commodity investments, investors can not only share in the benefits of global economic growth but also capture structural opportunities amid economic cycle changes.

To become a master in commodity investing, the key is to develop fundamental analysis skills, use economic logic to predict price directions, and complement with precise technical timing. Focus on the recommended varieties above, avoid chasing risky trends, and long-term, steady investment is the way to success.