Commodities are raw materials and physical goods that trade on global markets. Gold, crude oil, natural gas, copper, wheat, corn, and coffee are all commodities. Their prices are determined by global supply and demand, and they behave differently from stocks in ways that matter for traders.

What makes commodities different

A stock's value is tied to a company's future earnings. A commodity's value is tied to physical supply and how much of it the world needs right now. When a drought reduces the corn harvest, corn prices rise. When OPEC cuts oil production, crude prices spike. When central banks buy gold as a reserve asset, gold rallies.

This connection to physical supply and real-world events gives commodities a distinct price behavior. They tend to move on different catalysts than equities, which is why traders use them to diversify exposure across asset classes.

The major commodity categories

Precious metals include gold and silver. Gold is the most actively traded commodity in the world and serves a dual role as both a store of value and a safe-haven asset. When markets get volatile or inflation expectations rise, capital tends to flow into gold.

Energy commodities include crude oil (both West Texas Intermediate and Brent), natural gas, and heating oil. Energy prices are driven by production decisions from major producers, global demand patterns, weather, and geopolitical risk. Crude oil is particularly sensitive to supply disruptions and economic growth expectations.

Agricultural commodities include wheat, corn, soybeans, coffee, sugar, and livestock. These markets are influenced by weather, planting cycles, trade policy, and seasonal demand. They tend to have their own rhythm, less correlated with financial markets.

Industrial metals like copper, aluminum, and zinc reflect global manufacturing activity. Copper in particular is often watched as a leading indicator of economic health. When construction and manufacturing expand, copper demand rises. When they contract, it falls.

Why traders add commodities to their portfolio

Commodities offer something most other asset classes don't: a natural hedge against inflation. When prices for goods rise, commodity values tend to rise with them. Stocks, by contrast, can suffer when inflation increases costs for businesses.

Commodities also move on their own catalysts. An oil supply shock or a gold rally driven by central bank buying has nothing to do with whether Apple beat earnings. That independence makes commodities useful for building a portfolio that doesn't move in a single direction.