Commodities are generally divided into two types:
These are natural resources that require mining or drilling, like: gold, silver, oil, and copper. These commodities tend to have long shelf lives which means they can be stored for a long period time. Hard commodities are also used as a baseline for the health of the global economy due to the reliance of most economic sectors in these goods. Hard commodities are also relatively stable due to the consistency of mining and drilling operations.
These are mostly agricultural products like: wheat, rice, coffee, corn, pork, and sugar. Due to the nature of farming and how it is under the mercy of the weather, soft commodities tend to be more volatile. Unpredictable forces of nature have caused significant price fluctuations in the past and will continue to do so in the future. Overproduction of various crops is also a common occurrence, driving down the price of certain crops until the supply is brought down to normal levels.
Aside from the above categories, commodities can be further divided into asset classes. Under the asset class of energy, we have commodities that provide power to cities and vehicles, like: crude oil, uranium, gasoline, and natural gas.
The agricultural asset class contains the various crops and food staples like: wheat, rice, oats, and soybeans. The commodities market can find its roots in this asset class, and for over 100 years, futures trading was based mainly on agricultural products.
Under the precious metals asset class is gold, which played a major part in the history of finance, with the printing of currency being limited by gold reserves in the past. Although gold is no longer as vital to the economy as it once was, it still remains as one of the most stable commodities in the market.
Just because copper, steel and, aluminum are also metals, don’t presume that they belong to the same asset class as gold, silver, and platinum. Metals that are commonly used for construction and production fall in the asset class of industrial metals.
There are a lot more categories in the commodities market, which isn’t a surprise, with human needs and wants bordering on the limitless. With such a comprehensive list of commodities, it’s important for a trader to take his/her time to research. Every commodity has its own patterns; even commodities in the same asset class may react differently to the same stimulus. As with all markets, due diligence is necessary for a trader to be successful in the commodities market.