A commodity is an article or product that is used for commerce, is movable, has a value, can be bought and sold and which is produced or used as a subject in barter or sale. Commodities are traded in the physical and futures markets. Producers, Traders and Brokers, Processors, Distributors, Packagers, Wholesalers and Retailers are the major Participants in a Commodities market.
The Chicago Board of Trade (CBOT) and the Chicago Mercantile Exchange (CME) are the oldest commodity exchanges.
All over the world, there are several commodities in existence, but generally come under the following three categories:-
Commodities are traded by dealers on exchanges. Thus, prices of all commodities are essentially determined by Commodities Trading. This type of trading is generally characterized by high levels of volatility, as prices change on a day-to-day basis.
Amongst the commodities, crude oil and gold are two prime examples where the trading happens on a large scale.
Precious metals are defined as a category of metals that are generally rare and have a significantly high economic value attached to them. The primary precious metals are gold, silver, platinum and palladium. The importance of these metals can be gauged by the fact that, besides being rare in terms of availability, these serve as valuable avenues of investment and are extensively used or applied in industrial processes all over the world.
Investments in precious metals can happen in different ways, such as physical purchases, futures contracts or through exchange-traded funds. Precious metals, especially gold, serve as a hedge and a safe-haven asset or investment avenue to investors, especially in times of heightened volatility and extreme downturns in global equity markets, war-like situations or trade tussles, and periods of high inflationary trends.
Base metals are defined as a category of metals that are generally more abundantly available and are relatively inexpensive or cheaper compared to their precious metals counterparts. The primary base metals are zinc, copper, tin, lead and nickel. These are widely used for a wide range of industrial and commercial applications. Also, compared to the precious metals, these are much easier to mine. Among the base metals community, copper has particular importance in the sense that rising demand is associated with favourable and improving economic conditions, whereas falling demand is associated with slowdowns or waning economic activities.
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