Commodities are considered as a hot asset to invest your capital. Gold for example is called a safe heaven. It is easy to understand how Gold will behave. It has a nonlinear correlation with American dollar.
They are well standardized, and they can substitute one another. So, two equivalent units of the same commodity should have a uniform price around the world, excluding local factors like taxes and cost of transportation.
> Agricultural Commodities: raw goods such as sugar, cotton, coffee beans, etc.
> Energy Commodities: petrol products like oil and gas.
> Metal Commodities: precious metals such as gold, silver and platinum, but also base metals like copper.
> Livestock Commodities: pork bellies, live cattle and general livestock, as well as meat commodities.
Why trading Commodities?
There are three most crucial reasons which influence traders to choose commodities as investment assets.
The population growth- population growth means more mouths to feed, which raise the demand for agricultural commodities. Also, people need infrastructure which could have a significant impact on the demand for metal and energy commodities.
Inflation rates is the rate at which prices increases. So, with the same amount of money as today, tomorrow you will buy less products of the same type. Speaking for commodities, it will need more dollars to buy the same amount of a certain commodity in the future, which will lead to higher prices of the commodities.
Portfolio diversification, if you diversify your portfolio in various commodities, the lost which might come from decreasing markets will be recovered by other assets which might be stable or even in raise state. Commodities will help you to create diversification and better manage risk.