Commodity Index

Commodity indexes are nifty tools for economists, investors, and decision-makers in industries who deal in buying and selling stuff. Commodity indexes take things (commodities) and put them in a “basket” of goods, aggregating them together. Over time, you can see how a basket of commodities has risen or fallen by watching the commodity index rise or fall. Investors can invest in commodities indexes on the market, which change in value according to the value of the underlying commodities.

For instance, the Dow Jones AIG Commodity Index is a weighted index whose basket of goods includes metals, energy, livestock, and other agricultural goods. Almost like a game of Settlers of Catan, eh? As the value of these goods fluctuate, so does the commodity index. Just like in Catan when there are no more bricks on the board (so that nobody can build a road), shortages in goods can increase demand, and therefore value. And just like in Catan, when there are so many sheep that they’re practically free, a high supply of goods can decrease demand, and therefore value.

Of course, there are laws that artificially interfere with market values and a bunch of other complicated stuff that can affect the value of commodities, but you have the basics down. Just think of Catan. And never undervalue your wheat. Never.