Categorized | Commodities

How Supply and Demand Affect Commodities Prices

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Commodities Prices

What Drives Commodities Prices?

Commodities prices are driven by that most basic element in all business transactions: supply and demand. All business products are subject to these forces. However, commodities are the raw goods that are used to make every other product in the world. This includes everything from the lumber used to build houses to the petroleum used to make plastics. It also includes crops, metals, salt and even electricity. These are all basic necessities. Therefore, the demand for commodities is always strong. Profiting from commodities prices depends on the relative strength of the demand.

Supply is also an issue. Understanding an entire industry’s ability to extract coal from the ground or grow wheat may seem beyond you. However, there are easier ways to see supply problems developing. You do not need to have a degree in accounting, engineering or business to understand these issues. For example, political and military conflicts will almost always boost the prices of commodities raised or mined in an area. This can be seen in the way that unrest in the Middle East has contributed to elevated oil prices. These issues are obvious and well reported. It is easy to take advantage of news and settle your money into the right commodities.

How You Can Profit from Commodities Prices

If you want to let rising commodities prices help your portfolio’s performance, you can find them on commodities exchanges. There are dozens of them around the world and they are easily accessed on the Internet. Examples include the Chicago Board of Trade, the New York Mercantile Exchange, the London Metal Exchange and the Kuala Lumpur Futures Exchange. Special online software platforms can let you follow commodities prices closely while you trade.

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