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Commodities are things like sugar, coffee beans, copper, and oil. Seem random? Well, here's what they have in common:
- They can be sold, bought, or traded.
- They are produced in high volume.
- They are important in trade and economies.
- They are basically the same no matter who makes them (you might prefer one brand of coffee but one bag of coffee beans is basically the same as another—you wouldn't necessarily be able to tell the difference).
If you're buying and trading commodities, you'll find that global events make a big impact on prices and markets. For example, disturbances in the Middle East will affect prices of oil. A frost in Florida will make frozen concentrated orange prices skyrocket.
Commodities are also very sensitive to inflation. When people think that prices are about to go up, companies, investors, and other buyers will hoard a commodity, so supply is suddenly constrained and the price soars before dropping again. For example, if coffee prices are expected to go up, you can bet that big coffee companies and roasters will buy up beans. All those buys will then push the price up. And then... people will stop buying (because they have enough or because the prices actually do go up), and with fewer buyers, the prices will drop again.
It's a volatile and nasty commodities world out there. Hold on to your wallets.