Bulk Commodity Investment Guide: How to Strike Gold Among Many Varieties?

In today’s investment world, commodities stand shoulder to shoulder with stocks and bonds as indispensable asset allocation options. Their appeal lies in their ample liquidity, close ties to economic activity, and the fact that their price fluctuations often accurately reflect the global economic climate. This article will guide you to a deeper understanding of the commodities market and how to select truly worthwhile varieties to invest in.

What exactly are commodities?

Simply put, commodities refer to raw materials that are traded in large quantities and used in industrial production and consumption sectors. Their defining characteristic is the word “large”—large supply, large demand, and large inventories. Due to their massive scale, these goods often sit at the top of the industrial chain, where a small change can ripple through the entire system.

From a classification perspective, commodities are mainly divided into six categories:

Energy Sector: Crude oil, gasoline, fuel oil, natural gas, etc. Among these, crude oil is considered the “king” because its downstream products cover every aspect of daily life—plastics for food packaging, PTA for clothing, gasoline for transportation. Any fluctuation in crude oil prices can cascade through the entire economy.

Industrial Metals: Copper, aluminum, lead, zinc, iron ore, etc. These are the “blood” of manufacturing industries and are highly sensitive to economic cycles.

Precious Metals: Gold, silver, palladium, platinum, etc. The key difference from industrial metals is the word “precious”—for the same weight, their prices vary greatly. They rarely corrode and are naturally valued for preservation, hedging, and reserve purposes.

Agricultural Products: Soybeans, corn, wheat, and other widely cultivated staple foods.

Soft Commodities: Sugar, cotton, coffee, etc.

Livestock Products: Pork, beef, etc.

What kind of commodities do investors truly need?

Not all commodities are suitable for investment. Some goods, despite large supply and demand, have limited investment value due to transportation, storage, and pricing constraints. So, what are the commodities worth investing in?

First, liquidity must be sufficient. Massive capital inflows mean prices are highly transparent and nearly impossible to manipulate artificially. Crude oil, copper, gold, and others meet this standard.

Second, they must be globally priced uniformly. The varieties should be listed on multiple international exchanges, allowing traders worldwide to participate. This ensures that no matter where you are, you can buy and sell at the global market price.

Third, they should be easy to store and transport. Metals and grains are not affected by weather or climate, making them suitable for long-term holdings.

Fourth, they must be standardized products. Gold or crude oil produced in different countries should meet consistent quality standards and specifications.

Fifth, demand should be stable and widespread. Essential commodities like energy and food will always have demand across the globe.

Sixth, they should be easy to analyze. Transparent fundamental information allows investors to deduce price directions based on economic logic rather than relying solely on technical charts.

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

It is especially worth noting that commodities often experience major market movements when major economies enter synchronized cycles. For example, in 2020, the COVID-19 pandemic triggered a collective easing by central banks worldwide, flooding the market with liquidity, leading to a phenomenon of “money more than goods,” which sparked a powerful rally in commodities.

How to invest in commodities? Futures are the entry point

Regarding practical investment, commodities can be participated in through various methods, but for most retail investors, the most direct and effective are derivatives like futures and options.

Take futures as an example: each contract corresponds to a specific underlying—such as crude oil futures representing crude oil. But that’s not enough; you also need to understand the contract’s expiration month. The core logic of futures is to use the current price to set the forward spot price, so when trading, you must predict what the spot price will be at the expiration month.

To succeed in commodity futures trading, fundamental analysis is essential. Macroeconomic conditions and supply-demand dynamics determine the direction and magnitude of price movements. Technical analysis also plays a role, but never neglect the fundamentals—fundamentals need to be confirmed by technical signals to time entries and exits accurately, and risk management becomes more effective. Relying solely on technical charts cannot tell how long a trend will last or how big the rally might be; combining both is the best approach.

Final words from the heart

Investing in commodities essentially involves re-pricing the global industrial chain. Mastering the combination of fundamental and technical analysis, focusing on mainstream varieties with ample liquidity, global pricing, and strong fundamental drivers—namely crude oil, copper, aluminum, gold, silver, soybeans, corn, sugar, and cotton—is the safest path to investment success.