Understanding Commodities | PIMCO (2024)

FAQs

What are the basic concepts of commodities? ›

Commodities are raw materials used to create the products consumers buy, from food to furniture to gasoline or petrol. Commodities include agricultural products such as wheat and cattle, energy products such as oil and natural gas, and metals such as gold, silver and aluminum.

Commodities are often split into two broad categories: hard and soft commodities. Hard commodities include natural resources that must be mined or extracted, such as gold, rubber, and oil, while soft commodities are agricultural products or livestock, such as corn, wheat, coffee, sugar, soybeans, and pork.

There are three major types of commodities; agriculture, energy, and metals. These three are differentiated in the means of accessing them. The means of accessing them is based on whether they are hard or soft.

Commodities are raw materials used to manufacture consumer products. They are inputs in the production of other goods and services, rather than finished goods sold to consumers. In commerce, commodities are basic resources that are interchangeable with other goods of the same type.

What About Crude Oil? Crude oil is by far the biggest commodity market, and oil prices were the talk of the town for much of 2022.

Electricity is a unique tradable commodity because it is not storable. Several characteristics differentiate it from other tangible commodities like crude oil or natural gas: It is completely interchangeable. One megawatt hour (MWh) of electricity produced from coal or natural gas contains the same amount of energy.

Finally, in commodity trading, it is just as easy to profit from selling short as buying long. There are no restrictions on short selling as there are in the stock markets. Having the potential to profit just as easily from falling prices as from rising prices is a major advantage for an investor.

What happens to commodities in a recession? As a general rule, when economies slow, industrial outputs decline due to fewer infrastructure projects and house building, causing the demand for commodities to fall and prices to decline.

Like gold and oil, water is a commodity—and it happens to be rather scarce nowadays. So, as with any other scarcity, the water shortage creates investment opportunities.

What is the difference between a stock and a commodity? ›

Stocks denote company ownership, while commodities represent goods that include agricultural products, metals, oil, etc. Both these asset classes reserve sizeable profit-making potential.

Is gold a commodity or a currency? The answer – technically speaking – is that it is both. Gold is definitely a commodity, but it can be used in some similar ways to a currency. To understand how gold can be technically considered a currency, it is important to first define 'currency' and 'commodity'.

Known as the financialization of housing, the phenomenon occurs when housing is treated as a commodity—a vehicle for wealth and investment—rather than a social good.

Sugar cane is considered one of the most valuable agricultural commodities in the world.

Coffee is a popular beverage and an important commodity. Tens of millions of small producers in developing countries make their living growing coffee.

Commodities are interchangeable, meaning that the raw material is uniform and thus the source of the commodity does not matter. For example, an investor does not care whether gold is mined in South Africa or the United States because the gold is interchangeable.

Estimating the Role of Seven Commodities in Agriculture-Linked Deforestation: Oil Palm, Soy, Cattle, Wood Fiber, Cocoa, Coffee, and Rubber.

Use the Commodity Data Portal to visualize and chart the prices of 68 commodities from four commodity asset classes: energy, agriculture, fertilizers, and metals.

Food commodities can be either raw agricultural commodities or processed commodities, provided that they are the forms that are sold or distributed for human consumption.