Commodities are basic goods and raw materials that are typically extracted, grown, or produced in large quantities.
They are used to create finished products and are often traded on exchanges.
Commodities can be broadly categorized into two groups:
- Hard commodities: These include natural resources that require extraction or mining, such as metals (gold, silver, copper) and energy products (oil, natural gas).
- Soft commodities: These include agricultural products (soybeans, wheat, corn) and livestock (cattle, hogs).
Commodities play a crucial role in the global economy for various reasons:
- Production of goods and services: Commodities serve as the building blocks for the production of goods and services, fueling economic growth and development.
- Price stability and inflation: The prices of commodities can impact inflation rates and the overall stability of the economy.
- Diversification and risk management: Commodities offer investment diversification opportunities and can serve as a hedge against inflation, currency risks, and other market risks.
- Geopolitical factors: The production, supply, and demand of certain commodities are often influenced by geopolitical factors, which can create trading opportunities and impact the global economy.