Understanding Commodities:: A Timeless Cornerstone of Global Markets

What Are Commodities?

Commodities are basic goods that are interchangeable with other goods of the same type. They are fundamental to the global economy and include natural resources such as oil, gold, coffee, and wheat. Because commodities are standardized, their prices are driven by global supply and demand dynamics rather than by differences in quality.

In financial markets, commodities are typically traded on exchanges in two forms: spot contracts (for immediate delivery) and futures contracts (for delivery at a later date). Futures trading allows producers and consumers to hedge against price volatility, and provides investors with opportunities for speculation.

Categories of Commodities

Commodities are generally divided into two broad categories:

• Hard Commodities: Natural resources that are mined or extracted, such as oil, gold, and copper.

• Soft Commodities: Agricultural products or livestock, such as coffee, sugar, wheat, and cattle.

Each category has its own market dynamics. For instance, energy prices are heavily influenced by geopolitical events, while agricultural prices can be more sensitive to weather conditions and seasonal cycles.

Why Commodities Matter

Commodities serve several essential functions in the global economy:

• Inflation Hedge: Historically, commodities like gold have been used as a store of value during periods of inflation and currency devaluation.

Portfolio Diversification: Investing in commodities can reduce overall portfolio risk because they often have a low correlation with traditional asset classes like stocks and bonds.

Economic Indicator: Commodity prices can signal broader economic trends. Rising copper prices, for example, often indicate strong industrial demand and economic growth.

Key Trends in the Commodities Market (2025 Outlook)

As of 2025, several factors are shaping the commodities landscape:

• Energy Transition: The global shift toward renewable energy is increasing demand for metals like lithium, cobalt, and nickel, critical for battery production.

• Supply Chain Realignment: Ongoing geopolitical tensions and efforts to secure domestic supply chains are impacting the availability and cost of key commodities.

• Climate Change: Extreme weather events are increasingly affecting agricultural yields, leading to greater volatility in soft commodity markets.

• Technological Innovation: Advances in trading platforms and blockchain technology are enhancing transparency and accessibility in commodities markets.

• The crypto market capitalisation has been hovering around $2.97 trillion since the end of last week. The market has recovered to its 200-day moving average, but is hesitant to overcome it, as we see in the case of Bitcoin. The sentiment in the markets is neutral. It seems that players prefer to move upwards with relatively long stops.

Bitcoin is stabilising near $94,500, having fully recovered to the consolidation levels seen in February before its sharp decline. The technical outlook remains bullish, with BTCUSD trading above both its 50- and 200-day moving averages. Both indicators are trending upward, and last week’s consolidation above these levels marked a strong move, reinforcing the bullish momentum.

Ethereum is struggling with resistance in the form of the 50-day moving average near $1800 for the sixth day. Over the past couple of years, ETH has reacted strongly to movements around this curve: accelerating gains when breaking above it and facing significant pressure when falling below it. At the same time, there is a test of the resistance line of the descending channel, within which the movement has been going on since the second half of December.

Investing in Commodities

There are multiple ways to gain exposure to commodities:

• Direct Investment: Buying physical commodities, although this is impractical for most retail investors.

• Commodity Futures: Contracts to buy or sell a commodity at a future date.

• Exchange-Traded Funds (ETFs): Offering exposure to commodity prices without the complexity of futures contracts.

• Commodity Stocks: Investing in companies involved in the production or processing of commodities.

Investors should be aware that commodities can be highly volatile and influenced by factors beyond market fundamentals, including political decisions, natural disasters, and changes in consumer preferences.