Commodities are raw materials: energy, metals, agricultural products. Unlike a share, a barrel of oil produces no earnings and pays no dividend. Its price is determined by supply, demand, and the cost of holding it until someone needs it.
The categories
| Group | Examples | Primary drivers |
|---|---|---|
| Energy | Crude oil (WTI, Brent), natural gas | OPEC+ policy, inventories, geopolitics, seasonal demand |
| Precious metals | Gold, silver, platinum | Real yields, the dollar, central bank buying, safe-haven demand |
| Industrial metals | Copper, aluminium, nickel | Global manufacturing, construction, Chinese demand |
| Agriculture | Wheat, corn, soybeans, coffee | Weather, harvests, planting decisions, export policy |
Gold is the odd one out
Gold behaves less like a commodity and more like a currency with no government. Industrial demand is a minor part of the picture; the price is driven overwhelmingly by what else money can earn.
- Real yields. Gold pays no income, so its opportunity cost is the real (inflation-adjusted) return on government bonds. Falling real yields tend to support gold; rising real yields weigh on it. This is the single most useful relationship to know.
- The dollar. Gold is priced in USD, so a stronger dollar mechanically makes it more expensive elsewhere, dampening demand.
- Central bank demand. Central banks have been substantial net buyers in recent years, a genuinely price-relevant structural flow.
- Fear. Gold rallies during systemic stress, sometimes against everything the yield logic would predict.
Futures, and the trap in them
Most commodities are traded via futures — contracts to deliver a specific quantity at a specific future date. Each contract expires, which introduces mechanics that do not exist in stocks or forex.
| Term | Meaning | Effect on you |
|---|---|---|
| Contango | Later-dated contracts cost more than nearer ones | Rolling forward costs money each time — a persistent drag |
| Backwardation | Later contracts are cheaper than nearer ones | Rolling forward earns money — a tailwind |
| Roll | Closing the expiring contract and opening the next | Happens repeatedly; the cumulative cost can dominate returns |
| Delivery | The contract's obligation to actually deliver the goods | Retail traders must close before expiry — nobody wants the oil |
Seasonality is real here
Unlike most markets, commodities have genuine, physically-grounded seasonal patterns. Natural gas demand rises with northern-hemisphere winter heating. Agricultural prices respond to planting and harvest calendars. Petrol demand peaks in the US summer driving season.
These tendencies are real but not reliable enough to trade mechanically — a warm winter or an unexpected harvest overrides the pattern entirely. Treat seasonality as context that adjusts your bias, not as a signal.
Practical considerations
- Volatility is high. Natural gas and oil can move several percent in a session on an inventory number.
- Inventory reports are scheduled events. US crude inventories (Wednesdays) and natural gas storage (Thursdays) reliably move those markets.
- Geopolitics matters more than elsewhere. Supply is physically concentrated in specific regions; conflict genuinely disrupts it.
- The dollar is on the other side. Most commodities are priced in USD, so dollar strength is a headwind independent of supply and demand.