Commodity prices move on a different set of forces than stocks. While a stock reacts to earnings reports and company news, a commodity reacts to how much of it exists, how much the world needs, and what's happening in the broader economy. Understanding these drivers gives you a framework for anticipating where prices might head next.

Interest rates and the U.S. dollar

Most commodities are priced in U.S. dollars, which means the strength of the dollar directly affects commodity prices. When the dollar strengthens, commodities become more expensive for buyers using other currencies, which tends to push demand and prices down. When the dollar weakens, the opposite happens.

Interest rates drive dollar strength. When the Federal Reserve raises rates, the dollar typically strengthens as global capital flows into higher-yielding U.S. assets. This creates headwinds for commodity prices across the board. When the Fed cuts rates or signals a dovish stance, the dollar weakens and commodities tend to rally.

Gold is especially sensitive to this dynamic. Because gold doesn't generate yield, it becomes less attractive when interest rates rise and more attractive when they fall. Many of the largest moves in gold over the past decade have been direct responses to shifts in Fed policy.

Geopolitical risk

Commodities are physical goods that need to be extracted, produced, and transported. Any disruption to that supply chain moves prices. A conflict in an oil-producing region can take millions of barrels off the market overnight. Sanctions on a major metals exporter can tighten global supply for months. A shipping blockade through a key trade route affects everything from crude oil to grain.

These events are difficult to predict, but their impact on prices tends to follow a pattern. Supply disruptions cause sharp spikes. Once the disruption resolves or the market finds alternative supply, prices gradually return toward their previous range.

Energy commodities and agricultural products are the most exposed to geopolitical risk. Precious metals like gold tend to benefit from it, as traders move capital into safe-haven assets during periods of uncertainty.

Weather and natural events

Agricultural commodities are directly tied to growing conditions. A drought in the U.S. Midwest can devastate corn and soybean yields. Frost in Brazil can damage coffee crops. Flooding in Southeast Asia can disrupt rice production. These events create supply shortages that push prices higher, sometimes dramatically.

Energy commodities are affected by weather too. Cold winters increase demand for natural gas and heating oil. Hurricanes in the Gulf of Mexico can shut down offshore oil production and coastal refining capacity.

The impact of weather on commodity prices tends to be seasonal and temporary, but the moves can be large. Traders who follow weather forecasts and crop reports often spot these opportunities before they show up in price.

Inventory and production data

Commodity markets publish regular data on supply levels. The U.S. Energy Information Administration (EIA) releases weekly crude oil and natural gas inventory reports. The U.S. Department of Agriculture (USDA) publishes monthly crop production estimates. These reports are some of the most closely watched data points in commodity trading.

The logic is straightforward. If inventories are building, supply exceeds demand and prices face downward pressure. If inventories are drawing down, demand exceeds supply and prices tend to rise. Surprises in either direction, where actual inventory levels differ significantly from expectations, create the sharpest moves.

Seasonality

Many commodities follow predictable seasonal patterns. Natural gas demand peaks in winter for heating and in summer for electricity generation. Gasoline demand rises in spring and summer as driving activity increases. Agricultural commodities follow planting and harvest cycles, with prices often rising during planting season when supply uncertainty is highest and declining after harvest when supply hits the market.

Seasonality alone doesn't dictate price direction, but it provides a baseline expectation that traders can use as context. When a commodity breaks from its seasonal pattern, that deviation often signals something meaningful is happening in the underlying supply or demand picture.