Introduction to Commodities
Commodities are raw materials traded in standardised, interchangeable units: a barrel of a specified crude grade is the same wherever it is produced. That standardisation is what allows them to trade on exchanges.
They differ from financial assets in one decisive way: they physically exist, must be stored, and can be consumed. Almost every quirk of commodity markets follows from that.
The three groups
Energy: crude oil, natural gas, refined products, power. The largest by value, and the most macro-sensitive.
Metals: precious (gold, silver) held largely as stores of value, and industrial (copper, aluminium) consumed in construction and manufacturing. Copper's sensitivity to industrial demand earns it the nickname "Dr Copper" as a growth indicator.
Agriculture: grains, softs and livestock. Driven by weather and harvest cycles, so strongly seasonal.
Storability is the key variable
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