Commodities are basic goods that are used in commercial transactions and can be traded with other goods of the same type. Examples of commodities include gold, oil, beef, natural gas, coffee among many others. Because commodities’ prices fluctuate in response to natural conditions and their subsequent availability in the market, they often move in opposition to other financial instruments such as stocks and bonds and are regarded as a hedge against financial markets’ volatility.
Commodities are broadly grouped into the following broad categories: metals, energy, meat and livestock and agricultural products. They have traditionally been regarded as risky investments because the supply and demand factors associated with them are difficult to predict since they can rely on weather patterns, diseases, disasters and changing political circumstances where they are produced. Commodity trading has a long history and pre-dates the trading of stocks and bonds by millennia. The ability to trade and have access to commodities has been associated with the rise and fall of empires in history.