Commodities

Commodities are primary resources which are frequently used in industry, production, foodstuff and general daily consumption. The commodity markets vary from extremely volatile to being safe havens when trading, this is due to the diverse nature of commodities. Commodities fall into two categories, either hard or soft.

Soft commodities are goods that are agriculturally linked. For example, sugar, cocoa, livestock etc. are all soft commodities. Soft commodities are significantly more volatile than hard commodities due to their nature of use and conditions of production, such as bad weather destroying crops or killing livestock, global food trends and shortages.

Hard commodities are resources that must be extracted and typically also refined. These types of commodities are typically (but not always) less volatile than their soft commodity counterparts. Examples of hard commodities are gold, silver, crude oil, natural gas etc. Precious metals are normally less volatile due to their negative correlation to economic productivity and use as safe haven during economic uncertainty. Energy hard commodities are more volatile because of their level of consumption and should be researched and followed daily because of this.

BlackBull Markets’ Commodities

Commodity	Description
XAU/USD (Gold vs US Dollar)	Gold is the go-to safe-haven investment, meaning that during any periods of financial instability, political crisis or lower interest rate periods, investors are drawn to gold. This results in a generally negative correlation with the US Dollar
XAG/USD (Silver vs US Dollar)	Silver is a safe-haven investment as well, however to a far lesser extent than gold. Silver is also effected by solar panel demand (production component) and by purification and medical requirements due to its antibacterial properties
USOIL (US Light Crude Oil)	US Oil futures options. Demand for Oil is one of the best indicators of economic growth, however in recent years the indecision of OPEC and the large oversupply has pushed down the price. OPEC decisions are just as important as market conditions when determining the price of Oil
NGAS (Natural Gas)	Natural Gas (NG) futures options. As an alternative to other fossil fuels NG has a high demand and seasonal shifts in prices. Europe’s reliance on NG for winter energy increases the volatility around the Northern Hemisphere winter months

 

Hard and soft commodities can be affected by global events, both political and environmental due to the nature of their use. As well as this, other factors throughout the financial and international business world can greatly affect the volatility of commodities. As such it is advised that you develop a strategy that takes into account the differing nature of the behaviour of commodities in relation to that of currency pair and CFDs.