Commodity Investment Guide: Which Types Are Worth Your Attention?

Many investors, when first entering the investment market, tend to focus only on stocks and bonds, neglecting an equally important asset class—commodities. In fact, crude oil, copper, gold, and other commodities, together with stocks, bonds, and foreign exchange, form the core asset allocation of global investments. Their price fluctuations directly reflect the state of the global economy, and with ample liquidity, they are investment products worth deep understanding.

What exactly are commodities?

Commodities refer to large-volume physical goods that are available for circulation but are not in the retail sector, possess commodity attributes, and are used in industrial production and consumption. The biggest difference from ordinary goods is “large”—large supply, high demand, high circulation volume, and large inventories—thus they are often positioned upstream in the industrial chain.

Commodities are mainly divided into six categories:

Energy — including crude oil, gasoline, fuel oil, natural gas, and electricity. Among these, crude oil is the most critical, rightly earning the title of “King of Commodities.” Why? Because downstream products derived from crude oil almost cover every aspect of daily life: plastics for food packaging, PTA for clothing manufacturing, PVC for flooring and pipes, gasoline for transportation.

Industrial Metals — copper, aluminum, lead, zinc, iron ore, etc., are fundamental raw materials for industrial production.

Precious Metals — gold, silver, palladium, platinum, etc. Compared to industrial metals, precious metals are “precious” due to their high value density and almost non-perishability, naturally possessing properties of value preservation, hedging, and currency reserves.

Agricultural Products — soybeans, corn, wheat, and other widely cultivated grains.

Soft Commodities — sugar, cotton, coffee, etc.

Livestock — pork, beef, etc.

The six golden rules for investing in commodities

Not all commodities are suitable for investment. For example, although electricity has high supply and demand, its transportation scope is limited, and prices are regionally constrained, making it less ideal for most investors. So, what kinds of commodities are worth investing in?

First, market liquidity must be sufficient

This means there should be a large amount of capital participating in trading. Adequate liquidity ensures accurate price discovery and avoids manipulation risks. Crude oil, copper, gold, soybeans, and corn all meet this criterion.

Second, a unified global pricing reference

The commodity should be listed on multiple exchanges worldwide, facilitating participation by global investors. Crude oil and gold are typical examples; regardless of which exchange they are traded on, the reference price is the same global market price.

Third, storage and transportation should be convenient

The commodity should be easy to store and not easily affected by regional or climate factors. Metals and certain grains fit this requirement well.

Fourth, high standardization of the commodity

Quality should be consistent and strictly controlled. Gold, regardless of where it is mined, has a universally recognized quality standard; crude oil also has a clear grading system.

Fifth, stable and sustained global demand

Energy commodities (oil, natural gas) and food commodities (wheat, soybeans) have this characteristic, with long-term fundamental demand worldwide.

Sixth, availability of fundamental information

Investors should be able to infer price trends based on economic logic rather than relying solely on technical analysis. This approach improves the probability of successful investments and reduces decision-making risks.

Based on these standards, key commodities to watch include: crude oil, copper, aluminum, gold, silver, soybeans, corn, sugar, cotton.

When is a good time to invest in commodities?

Since commodities are globally priced, the key for investors is to identify moments of global economic resonance. When major economies’ cycles synchronize, it often creates a strong driving force for commodities.

For example, in 2020, after the outbreak of the pandemic, global central banks launched quantitative easing (QE), leading to liquidity flooding—often summarized in investment circles as “more money than goods,” which directly pushed up prices, resulting in inflation. In such an environment, commodities experienced a broad rally. Similar macro windows are often golden opportunities for profit in commodity investments.

How to choose investment methods for commodities?

For most individual investors, direct physical investment (such as buying spot goods, investing in mines and logistics) has high barriers. A more practical approach is to invest through derivatives, mainly futures and options.

For newcomers to commodity investing, the first step is to master commodity futures. Each futures contract has a clear underlying— for example, crude oil futures are based on crude oil.

After selecting the underlying, the next step is to determine the contract month. Futures prices are expectations of the spot price at the contract’s expiration, so investors need to forecast the future spot price for that month and make corresponding trading decisions.

The perfect partnership of fundamentals and technicals

Participating in commodity futures requires mastering two core analytical dimensions.

Fundamental analysis — The ultimate target of commodity futures is the future spot price of the commodity in a specific month. Influencing factors mainly include macroeconomic conditions, supply, and demand. Studying these factors is called “fundamental analysis,” which determines the direction and magnitude of price movements.

Technical analysis — Using historical price and volume data to identify patterns in price movements.

However, both are indispensable. Fundamental analysis needs confirmation from technical analysis to pinpoint more precise entry and exit points and control risks; technical analysis also needs fundamental guidance because technicals alone cannot tell you how long a trend will last or how big the price swings might be. Combining both is the correct approach to investing in commodities.

Key points summary

The essence of commodity investment is to reprice the global industrial chain. Investors should focus on high-liquidity, globally priced, fundamentally driven quality commodities, including crude oil, copper, aluminum, gold, silver, soybeans, corn, sugar, and cotton.

Whether selecting products or judging timing, remember one point: combining fundamental and technical analysis, participating in mainstream commodity futures, is the right way to invest in commodities.