From an investor's perspective on commodities: How to select the most promising varieties to enter?

What Exactly Are Commodities?

In the capital markets, commodities form a core asset class alongside stocks, bonds, and foreign exchange. Their high liquidity and strong correlation with macroeconomic trends make them particularly noteworthy, as their price fluctuations can accurately reflect economic cycle changes.

Commodities (Commodities) are essentially large-volume, non-retail, industrial materials. Compared to ordinary goods, their key characteristic is “large”—massive supply, extensive circulation, and ample inventories—placing them typically at the upstream of the industry chain.

Based on their nature, commodities are mainly divided into six categories: energy, industrial metals, precious metals, agricultural products, soft commodities, and livestock. Additionally, due to the pivotal role of shipping in global trade, shipping indices are also regarded as a special category within commodity investments.

Specific categories include:

Energy includes crude oil, gasoline, fuel oil, natural gas, and electricity. Crude oil, as the most liquid energy product, has a huge supply and demand scale. Its downstream products include plastics, PTA (textile raw materials), PVC (building materials), gasoline, etc., permeating all aspects of daily life, earning it the title of the king of commodities.

Industrial metals encompass copper, aluminum, lead, zinc, and iron ore, widely used in manufacturing.

Precious metals include gold, silver, palladium, and platinum. They are characterized by their “precious” nature—unit prices far higher than industrial metals, strong corrosion resistance, and ease of storage—thus possessing monetary attributes and hedging functions.

Agricultural products mainly refer to widely cultivated grains such as soybeans, corn, and wheat.

Soft commodities include sugar, cotton, coffee, and other non-hard resource varieties.

Livestock covers pork, beef, and other meats.

What Are the Specific Investment Paths for Commodities?

Investing in commodities mainly involves two approaches: physical asset investment and derivatives trading. For individual investors, derivatives are the most practical, with futures and options being the most common tools.

Core Logic of Commodity Futures Investment:

Each futures contract corresponds to a specific investment target. For example, a crude oil futures contract’s underlying asset is crude oil, but the key point is the contract’s expiration date—its price is based on forward-looking spot prices for that month. Investors need to predict the spot price trend at expiration and make trading decisions accordingly.

The main factors influencing futures prices are threefold: macroeconomic cycles, supply of the commodity, and market demand. Studying these factors is called “fundamental analysis,” which determines the direction and magnitude of price movements.

In addition to fundamentals, technical analysis (chart trends, price patterns, etc.) is also an important reference. However, both should be used together—fundamentals set the overall direction, while technicals confirm entry points; technicals indicate rapid price changes, and fundamentals reveal how long the trend might last. Combining both maximizes investment success and effectively manages risk.

How to Select Worthwhile Commodities for Investment from Many Varieties?

Not all commodities are suitable for individual investors. For example, although electricity has high supply and demand, its regional price characteristics and transportation limitations make participation less valuable for most investors.

High-quality commodity investment targets should have the following features:

1. Sufficient Market Liquidity

The variety must have ample participation. Large inflows of different types of capital mean transparent pricing and minimal risk of price manipulation. Crude oil, copper, gold, soybeans, and corn all meet this criterion.

2. Global Uniform Pricing

The commodity is traded on multiple major exchanges worldwide, facilitating global investor participation. International commodities like crude oil and gold have unified global prices, allowing trading based on worldwide market rates.

3. Ease of Storage and Transportation

The commodity should be easy to store and not heavily constrained by geography or climate. Metals and grains perform well in this regard.

4. Standardized Quality

Regardless of origin, the quality of the commodity is recognized and controlled by international standards. Gold and crude oil, for example, have the highest quality consistency.

5. Stable and Broad Demand

There is long-term, stable genuine demand for the commodity worldwide. Energy (oil, natural gas) and food (wheat, soybeans) are prominent examples.

6. Transparent and Accessible Fundamental Data

Investors can easily obtain supply-demand data, macroeconomic influences, and other relevant information, enabling them to judge price trends from an economic perspective and avoid decision-making based solely on technical analysis.

Based on these dimensions, the most noteworthy commodities include: crude oil, copper, aluminum, gold, silver, soybeans, corn, sugar, and cotton.

How to Seize Investment Opportunities: When to Participate in Commodities?

Since commodities are priced globally with unified rates, the most efficient investment opportunities often occur when major economies worldwide resonate in the same cycle. For example, during the 2020 pandemic, global central banks collectively launched quantitative easing (QE), leading to a “money surplus and goods shortage” scenario, which triggered inflation expectations. Under this macroeconomic backdrop, commodities generally experienced significant upward movements—an investment opportunity driven by global economic cycle resonance.

Conclusion

Commodities, alongside stocks and bonds, constitute an important major asset class. Participating in commodity investment essentially involves re-pricing the global industrial chain.

Practical experience shows that combining fundamental analysis with technical judgment—focusing on mainstream futures varieties with good liquidity, global pricing, and clear fundamental drivers—is the correct approach to commodity investment. Key commodities to watch include crude oil, copper, aluminum, gold, silver, soybeans, corn, sugar, and cotton. These have strong liquidity, unified global pricing, and powerful fundamental support, making them the best entry points for individual investors into the commodity market.