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Financial Literacy

Financial Literacy

Home Financial Literacy Investing 101 What are Commodities?

What are Commodities?

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. killing the penny – less demand for copper – should crush copper prices. 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… 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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