TradingKey - The global commodity market encompasses a variety of essential products, including energy resources such as oil and natural gas, precious metals like gold, and important agricultural products such as wheat and coffee.
In the following sections, this article will focus on three major sectors: energy, precious metals, and agricultural products. We will explore how key commodities like oil, natural gas, gold, wheat, and coffee are traded.
Energy Category
Oil: The black gold that powers the modern economy—what secrets lie behind its price fluctuations?
Often referred to as the "lifeblood of industry," oil plays an indispensable role in today's world.
From gasoline and diesel that fuel vehicles to various plastic products and a wide range of industrial goods, oil is everywhere.
It serves not only as a cornerstone of global energy supply but also as a crucial pillar for the economic development of many nations.
What does global oil distribution look like?
Saudi Arabia ranks as the second-largest oil producer worldwide, and the region holds over 50% of the globe's oil reserves, which is why it is often referred to as "the epicenter of oil."
Venezuela has the greatest reserves globally; however, its ability to produce oil is constrained.
The United States has risen to prominence as a major oil producer thanks to its shale oil revolution, while Canada’s oil sands reserves are also notable.
OPEC holds substantial influence in international oil markets; its member countries coordinate production policies that shape global oil prices and supply dynamics.
To ensure energy security, many nations engage in energy diplomacy, which further impacts international relations.
(Source: Freepik)
What Factors Influence Oil Price Fluctuations?
- Supply and demand dynamics are key drivers of oil prices. When global economic growth is strong, demand for oil rises, leading to higher prices. Conversely, during economic downturns, demand diminishes, causing prices to drop.
Adjustments in production levels by major oil-producing nations, such as OPEC's decisions to cut or increase output, also significantly affect prices.
- Geopolitical tensions can lead to major volatility; even minor conflicts in the Middle East can create ripples throughout the global oil market.
A prime example was the 2022 Russia-Ukraine conflict, which triggered panic buying in Europe and caused oil prices to soar above $130 per barrel.
- Other factors—including macroeconomic conditions, crude oil inventory levels, exchange rates (as oil is priced in US dollars), and advancements in renewable energy technologies (such as the growing popularity of electric vehicles putting long-term pressure on oil demand)—also play crucial roles in influencing oil prices.
The 1973 Oil Crisis—A Global Wake-Up Call
Fifty years ago, Middle Eastern oil-producing nations unexpectedly announced production cuts that led to a staggering fourfold increase in oil prices within just a year.
Long lines formed at gas stations across the United States as the economy fell into "stagflation."
This crisis highlighted the importance of energy diversification; countries began making substantial investments in alternative energy sources like solar and wind power, accelerating the development of green energy technologies.
Natural Gas
In the shadow of coal and oil's high pollution levels, natural gas has emerged as a "transitional player" in the energy transition due to its relatively "clean" advantages.
In the power generation sector, natural gas provides efficient, flexible, and cleaner electricity production. It has high efficiency and can quickly adapt to fluctuations in electricity demand, ensuring a stable power supply.
What Factors Influence Natural Gas Prices?
Metal
Precious Metals
Gold — The Safe-Haven Asset in the Investment Sphere
Why does gold become a sought-after commodity whenever there’s economic turmoil?
As the leading precious metal, it is not only a popular item in jewelry stores but also serves as an “inflation shield” for investors.
Gold's value is relatively stable and has a low correlation with other asset classes such as stocks and bonds, making it an effective tool for risk diversification.
During times of significant volatility in financial markets, gold often plays a protective role, providing essential safeguards for investors' assets.
During the 2008 global financial crisis, while stock markets plummeted and many investors faced substantial losses, gold prices rose against the trend, helping holders of gold mitigate their losses.
In the past decade, gold prices have more than doubled, although this increase has not always adhered to traditional market patterns. Central banks around the world are increasingly purchasing gold to diversify their cash reserves, while retail investors seek exposure to gold through a variety of investment instruments.
What Influences Gold Prices?
- Economic Conditions Determine Investor Sentiment
When the economy displays strong growth prospects, investors tend to allocate funds to higher-risk, higher-return assets. In instances where this occurs, gold demand may fall, which could result in a decrease in prices. Conversely, when economic growth slows or uncertainty arises, investors typically seek safe-haven assets. As a traditional haven, demand for gold rises during these times and drives prices upward.
- Central Bank Monetary Policy
During periods when central banks pursue loose monetary policies—heightening expectations of currency depreciation—gold becomes more attractive due to its value-retaining properties، causing prices to climb. Conversely, as monetary policy tightens and currency values strengthen, demand for gold typically decreases and prices may decline.
- Geopolitical Tensions Trigger Gold's Rally
Events such as wars and political conflicts can easily incite market panic, prompting investors to buy gold out of risk aversion during such times.
For instance, during periods of frequent conflicts in the Middle East, gold prices typically experience noticeable increases.
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(Source: Shutterstock)
Silver
When people think of precious metals, many immediately think of gold, but silver actually stands out as a “versatile player”—functioning both as an investment safe-haven like gold and holding significant value in the industrial sector.
An Emotional Alternative to Gold
Like gold, silver is labeled an "inflation hedge." When the pandemic struck in 2020 and central banks around the world engaged in extensive monetary easing, silver prices skyrocketed from 12 to 29, showing a growth rate even more vigorous than that of gold.
Is gold too expensive?
Silver has a much lower entry barrier, making it accessible for ordinary investors who can easily get started.
Moreover, its price movements tend to be more volatile—silver can rise faster than gold during market surges while also experiencing sharper declines.
What Are the Industrial Applications of Silver?
The broad industrial applications of silver mean that its prices are influenced not only by investment demand but also closely tied to developments in the global industry.
When the global manufacturing PMI (Purchasing Managers' Index) rises above 50 and sectors such as electronics and photovoltaics ramp up production, industrial demand for silver tends to soar.
Industrial Metals
Industrial metals like copper, aluminum, zinc, and iron ore serve as essential raw materials in numerous sectors of the real economy—including construction and manufacturing—and support the robust development of modern industry.
Price fluctuations in industrial metals reflect changes in global economic conditions while presenting investors with various opportunities and challenges.
Investors should not only monitor shifts in economic cycles but also pay close attention to policy dynamics within mineral-producing countries, transportation market conditions, and technological innovations across various industries to better understand trends in industrial metal prices.
Agricultural Products
Cereal Crops
As the cornerstone of global food security, cereal crops such as wheat, corn, soybeans, and rice serve not only as staple foods for humans but also as essential raw materials for animal feed and food processing.
Wheat — A Global Essential from Farm to Table
Did you know that wheat is cultivated in nearly every piece of arable land around the globe?
In the Northern Hemisphere, extensive wheat fields stretch from Russia's Siberian Plains to India's Ganges Plains and from the Great Plains in America’s Midwest to the northern plains of China as well as along the middle and lower sections of the Yangtze River.
Russia is a major wheat exporter with primary production areas located in the Volga River basin and Western Siberia.
In the U.S., wheat cultivation is concentrated in states like Kansas and North Dakota.
This pervasive presence makes wheat a “ballast” for food security—wherever there is famine, there is a need for wheat; conversely, wherever there is an oversupply of grain, wheat plays a crucial role in stabilizing markets.
(Source: Freepik)
What Factors Influence Wheat Prices?
- Oil Prices — The Hidden Connection from Fields
It’s a misconception that wheat and oil are unrelated; their prices are closely intertwined.
When oil prices rise, costs for fertilizers (most nitrogen and phosphorus fertilizers are derived from oil), pesticides, and diesel fuel (used for farming machinery) also increase.
As a result, farmers face higher production costs for growing wheat, which leads to increases in selling prices.
Countries like the U.S. and Brazil convert wheat into ethanol fuel—when oil prices are high, energy companies compete for more wheat to refine into fuel, which diverts some supply away from food markets.
- Climate Conditions
Weather conditions are critical factors affecting yields. Natural disasters such as droughts or floods can diminish wheat production and trigger price hikes—for instance, in 2010 when adverse weather conditions in Russia led to a temporary surge in global wheat prices.
- Government Policies Affecting Wheat Markets
Subsidies Stimulating Production: For example, when the EU provides substantial subsidies encouraging farmers to increase their wheat output, higher yields could subsequently lead to lower prices.
Export Restrictions Safeguarding Supply: Countries like India or Turkey may impose sudden export restrictions when domestic food supplies tighten; this often results in immediate global shortages with skyrocketing prices.
Strategic Grain Reserves: The grain reserves held by major countries such as China and the U.S. directly impact market expectations—when reserves are adequate, prices tend to stabilize; however, dwindling reserves can lead to significant price volatility.
Cash Crops
Cash crops include cotton, rubber, coffee, cocoa, and more. Although these crops are not directly consumed as food, they serve as essential raw materials for manufacturing and consumer goods.
Cotton is a core material in the textile industry; rubber is used in tire production; and coffee and cocoa are crucial ingredients in the global beverage market.
Coffee
Coffee is cultivated in tropical and subtropical regions around the world, with unique flavors and qualities influenced by its origin.
What Factors Influence Coffee Prices?
- Production Impact
Changes in coffee bean production are direct factors affecting prices. Coffee trees are sensitive to their growing environments; climatic conditions such as droughts, floods, and pest infestations can significantly impact yields.
For example, Brazil faced severe droughts and frost damage in 2019 that substantially decreased coffee bean production, leading to an increase in prices on the international coffee market.
- Consumption Impact — From "Having a Cup" to "Pursuing Quality"
The global proliferation of coffee culture combined with rising living standards has led to increased demand for coffee—especially in rapidly growing consumption markets within emerging countries.
Consumers have become more discerning about the quality and flavor of their coffee, resulting in higher prices for premium beans. Additionally, competition within the coffee market landscape, branding strategies, and shifts in consumer preferences also influence demand and pricing.
(Source: Freepik)
