Commodities are raw materials that are used to make other products. These materials range from agricultural (wheat, corn, soy) to metals (gold, silver, copper) to energy (crude, natural gas, heating oil) and more.
Commodities are standardized across producers with the use of minimum quality standards, called basic grades. This allows them to be interchangeable and grants each type of commodity a value that can fluctuate with the movements of the global market.
Commodities’ investing is the way in which investors, from individuals to large banks, can make money trading commodities and commodity securities by taking advantage of these movements.
Metal commodities include precious and non-precious metals. Generally speaking, these metals are used as raw components in manufacturing, electronics, and jewellery. Some metals have more than one use; gold, for example, is used extensively as an electrical conductor, as well as a major component in jewellery.
Just like company stocks are traded in a stock exchange market, commodities are traded in a commodity exchange market. The price of commodities also goes up and down as per market conditions thus providing an opportunity for investors to profit from the same.
More commonly precious metals like gold and silver used in jewellery are also bought by many people for ornamental use as well as personal investment. Many times gold and silver jewellery is handed over from one generation to another as gifts and inheritance. Gold is popular asset in the investment portfolio of many investors.
Commodities can go a long way in adding to your passive income portfolio while providing much needed diversification.
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