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Finance Glossary

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Over 700 finance terms, Shmooped to perfection.

Commodities

Definition:

Commodities, technically are things you find anywhere, can buy and sell easily and have low margins (but often high volumes) for the people who broker them. Commodities are things like copper and oil and sugar and coffee beans and evil lawyers (ha).

Commodities generally are very sensitive to global macro" incidents - i.e. a bomb in the Suez Canal likely restricting the export of oil from Saudi Arabia will send oil prices up a lot. A frost in Florida killing citrus will make frozen concentrated orange prices go up. The U.S. discontinuing the penny should crush copper prices because there would be lowered demand for copper (yeah, we're ignoring that pennies are mostly made from zinc, but you get the idea).

Commodities are also very sensitive to inflation. When the marketplace fears that prices are about to go up, companies, investors and other buyers tend to hoard the commodity, so supply is suddenly constrained and the price soars until, those inflation fears are "baked in" to the price - and then things plummet. The key idea is that it's a volatile mean nasty world out there. Hold on to your wallets.

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