Introduction to Commodity Investment: How to Choose Trading Assets Worth Paying Attention To?

In the global asset allocation, commodities play a role comparable to stocks and bonds. They feature high liquidity, are closely related to macroeconomic cycles, and their price fluctuations often accurately reflect economic trends. This article will delve into the investment logic and operational methods of commodities.

Understanding the Nature of Commodities

Commodities refer to large-volume physical goods that enter circulation (but are not in the retail sector), possess commodity attributes, and are used in industrial production and consumption. Their core characteristic is “large” — large supply, large demand, and large circulation, typically positioned upstream in the industry chain.

Based on their characteristics and uses, commodities are mainly divided into six categories:

Energy includes crude oil, gasoline, fuel oil, natural gas, and electricity. Among them, crude oil, with its vast supply and demand scale and downstream applications spanning the entire industry chain from clothing to housing and transportation, is known as the “King of Commodities.” Plastics are used for food packaging, PTA for clothing, PVC for flooring and pipelines, and gasoline for transportation, illustrating the influence of crude oil.

Industrial Metals include copper, aluminum, lead, zinc, and iron ore, widely used in infrastructure and manufacturing.

Precious Metals encompass gold, silver, palladium, and platinum, characterized by their “precious” nature — their prices per weight unit are much higher than industrial metals, and they rarely corrode, making them suitable for store of value, preservation, and hedging.

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

Soft Commodities include sugar, cotton, coffee, etc.

Livestock includes pork, beef, and other meat products.

Additionally, since many commodities are transported via sea freight, shipping indices also serve as special reference indicators.

Investment Methods and Tools for Commodities

For individual investors, direct participation in commodity investment is mainly through derivatives, with futures and options being the primary tools.

The Basic Logic of Futures Investment

Commodity futures are standardized contracts that specify the underlying (e.g., crude oil futures corresponding to spot crude oil) and the contract expiry month. Investors need to predict the spot price of the commodity at the contract’s expiration and make trading decisions accordingly. This requires fundamental analysis skills.

Dual Judgment of Fundamental and Technical Analysis

The core factors influencing commodity futures prices include macroeconomics, supply, and demand, which constitute the core content of “fundamental research.” Fundamentals determine the direction and magnitude of price movements.

However, fundamental analysis needs to be confirmed by technical analysis to grasp precise entry and exit points and effectively control risks. Meanwhile, technical analysis also requires fundamental guidance, as pure technical analysis cannot determine the duration of trends or the extent of volatility. Combining both is the correct approach.

What Kind of Commodities Are Worth Investing In?

Not all commodities are suitable for investment. When selecting targets, attention should be paid to the following six dimensions:

1. High Trading Activity
The commodity must have sufficient liquidity, meaning substantial participation from various types of capital, which ensures proper pricing and makes manipulation difficult. Crude oil, copper, gold, soybeans, and corn all meet this criterion.

2. Global Pricing Mechanism
The commodity is listed on multiple exchanges worldwide, forming a unified global reference price, facilitating trading based on a standard. Crude oil and gold are prime examples.

3. Storage and Transportation Convenience
The commodity is easy to store and is not overly affected by regional or climatic factors. Metals and grains generally meet this requirement.

4. Standardized Quality
Regardless of origin, the quality of the commodity is strictly controlled and recognized, such as gold and crude oil, which are highly standardized.

5. Stable and Widespread Demand
There is long-term stable demand globally, such as energy (oil, natural gas) and food (wheat, soybeans).

6. Strong Fundamental Analyzability
Relevant information is easily accessible, allowing investors to judge price trends based on economic logic rather than solely relying on technical analysis.

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

Key to Seizing Investment Opportunities

As globally priced assets, the best investment timing for commodities often occurs during periods of resonance among major economies worldwide. For example, in 2020, during the pandemic, global central banks implemented quantitative easing policies, creating an inflation environment where “money outpaces goods,” leading to a significant rally in commodities. This demonstrates that macroeconomic policies have a powerful driving effect on commodity prices.

Conclusion

Commodities are an important asset class alongside stocks and bonds. Participating in commodity investment essentially involves re-pricing the global industrial chain. The most feasible investment strategy is to combine fundamental and technical analysis, focusing on high-liquidity, globally priced, fundamentally driven quality assets. The nine commodities—crude oil, copper, aluminum, gold, silver, soybeans, corn, sugar, and cotton—all possess strong investment value.