Trading commodities is as old as civilization. It dates back further than trading stocks and cryptos. Old civilization traded different commodities and made it an essential trading process. They might be related to food, energy, metals and everything which comes from earth and can be sold and bought. Even a small rise in the crude oil price would influence everyone who uses a car. A change on the soybean supply would influence your meals. Commodities can be an important way to diversify a portfolio. Usually they move in opposition to stocks, so they are considered as a safe place to stay during storms in financial market.
Metals trading is old story, as old as humanity is. The first metals traded were gold, silver, platinum. As trading technology is developed, precious metals are one of the most keystones working parts that
decide the value of the commodity market in general. Precious metals and other commodities are traded on CFDs also and can bring big results to traders in short and long term.
In the modern days, Asia is the continent which has invested the most on purchasing precious metals. Even though, as market, commodity market is dominated by European and American investors. The
location does not matter. You have all the potential to make money in precious metals. We are the right company to get started, since we have the right experience, professional people, technology and security
options to provide you with. We want to give you all the solutions that will make you avoid making costly mistakes.
When traders spend their time on volatile or bearish stock markets, it is a bit difficult for them to adapt with the stability of the precious metals such as gold, which is considered a reliable dependable metal with a certain value. Precious metals can also be used as a hedge against high inflation or periods of currency devaluation.
Nowadays, tradable commodities are divided into four categories:
- Metals- gold, silver, platinum, copper and more.
- Energy- such as crude oil, heating oil, natural gas, gasoline and more.
- Livestock and Meat – including lean hogs, pork bellies, live cattle, feeder cattle and more.
- Agricultural- including corn, soybeans, wheat, rice, cocoa, coffee, cotton, sugar and more.
When we talk about long term influencers it comes up into 2 factors: demand and supply. There are many other intermediate factors which might be: income and population, the cost of production and technology plus the actions of governments and producer organizations, the weather, interest rates and speculation.
Income and population
As economies grow and be more industrialized, they typically increase the amounts of commodities they consume – particularly metals like steel, energy and agriculture. However, when the economy reaches a certain level of development, you will see a smaller increase in commodity demand for a corresponding rise in income. In the same time, the type of commodities consumed changed- as people get wealthier, they spend more on protein-based foods, which increases demand for livestock and the crops used to feed them.
Costs and technology
The first factor which determine the commodity price is the cost of its production. The cost of production includes raw materials, wages, research and development, insurance, licensing fees, taxes and every other cost incurred by real world commodity businesses. In long term technology advancements may result in greater returns which reduce the average cost of the production.
Government policy and producer organisations
Some type of governments, autocratic specifically put a low price on commodities, in the name of providing benefits to their poorest people. This is particularly connected to energy and agricultural ones. On the other side, other type of governments tends to put high taxes on commodities production generally on the transport fuel. They justify themselves for the environmental issue.
Too much sun, too dry, too wet, too hot or too cold; unless the weather is just right agricultural commodities will suffer. There are other examples where commodities are highly affected from weather, let’s see hurricane force winds in the US Gulf can force offshore oil producers to shut down. Low water levels in Indonesia can make it more difficult for nickel miners to ship the metal to market.
Interest rates and the US dollar
Lower interest rates may encourage businesses and consumers to raise their spending on investment and consumption. This will increase the demand for commodities. Most of commodities around the world are priced in US dollars. Every change in the rates of USD is transmitted to the prices of commodities.
Traders have access to over 50 commodity assets, which allow them to invest their capital in hard commodities like metals, oil and other valued metals for building materials like copper. The commodity market offers liquidity and leverage to individual traders that want to trade only in this market. Of course, the larger might be the amount to trade, the larger are the chances to make good profits.
The most profitable aspect of investing precious metals is an attribute called the intrinsic value. If an asset has intrinsic value, it means that the value of the asset is not depended on the supply and demand of the market for this asset, but from the characteristics of the asset itself. Usually when an asset has been always valued through the history, like gold, and it is immune to inflation (for no reason you decide to print more gold!) it is said that it has intrinsic value. The desire of investors for long-term ownership of precious metals give them enormous gains in long term. Traders and investors can even protect their capital, by converting it in precious metals during hard time of other asset, like cryptos or currency pairs.
Precious metals have been appreciated for centuries and hold a considerable place in the today’s financial market. They are especially preferable to diversify the portfolio in long term and their value will not fade since they are used in too many industrial areas, crucial for people’s life. To take the maximum out of the commodity benefits, you need to understand the risks and benefits which come from them. They are considered safe havens, but their volatility should not be underestimated. Nothing to worry related to that, out of volatility can come a big fortune.