Introduction to Commodity Investment: How to Profit from Global Liquidity Assets?

The appeal of the commodities market lies in the fact that, like stocks and bonds, it is an important asset class that global investors cannot avoid. However, many novice investors are often overwhelmed by the variety of options—where should they start?

First, Clarify: Which Commodities Are Worth Participating In?

Commodities may seem diverse, but not all are suitable for ordinary investors. A key criterion is: liquidity.

High market liquidity means ample capital, well-established pricing, and difficulty in manipulation. Take crude oil as an example: its supply and demand are enormous—from plastic packaging, clothing fabrics (PTA), construction materials (PVC), to daily gasoline, downstream applications of crude oil permeate almost every aspect of life. Therefore, it is rightly called the “King of Commodities.”

In contrast, electricity, although also in high demand and supply, is less ideal for investment due to transportation limitations and regional price differences.

What Characteristics Do Worthy Commodities Share?

A high-quality commodity investment should meet these six dimensions:

Sufficient liquidity and global pricing. Commodities like crude oil and gold are quoted on multiple exchanges worldwide, allowing investors to trade at a unified global market price without regional restrictions.

Standardization and ease of storage. Regardless of origin, commodities like gold and copper are strictly certified for quality, facilitating long-term storage and transportation. This is also why precious metals serve as a store of value and hedging tools—they rarely spoil or degrade.

Stable and widespread demand. Energy commodities (oil, natural gas) and agricultural products (wheat, soybeans) have long-term, continuous consumption worldwide.

Transparent fundamentals. Investors can easily access macroeconomic data and supply-demand information, enabling them to judge price trends based on industry logic rather than purely technical analysis.

Based on these standards, the most worthwhile commodities to participate in include: crude oil, copper, aluminum, gold, silver, soybeans, corn, sugar, cotton.

Classification Framework of Commodities

To better understand the market, investors need to recognize the main categories of commodities:

Energy: Crude oil, gasoline, fuel oil, natural gas, etc. Crude oil is the most important, with liquidity and influence far surpassing other energy commodities.

Industrial Metals: Copper, aluminum, lead, zinc, iron ore. These are fundamental raw materials for industrial production.

Precious Metals: Gold, silver, palladium, platinum. Compared to industrial metals, they have higher unit value and possess inherent monetary and hedging properties.

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

Soft Commodities: Sugar, cotton, coffee, etc.

Livestock: Pork, beef, and other meat futures.

Trading Tools: Understanding the Market Through Futures

For newcomers to commodities investing, futures and options are the primary derivative trading tools.

Futures are the most basic. Each futures contract corresponds to a specific spot asset (e.g., crude oil futures linked to crude oil spot) and a delivery month. The core task for investors is to predict the spot price at the contract’s expiration and make trading decisions accordingly.

Winner’s Mindset: Combining Fundamentals and Technicals

Many investors either rely too heavily on fundamental analysis or become purely technical traders. In reality, both are essential.

Fundamentals determine the direction. Macroeconomic conditions, industry supply and demand changes, these factors determine the long-term trend and magnitude of commodity prices. For example, during the 2020 pandemic, global central banks implemented quantitative easing (QE), leading to inflation caused by “more money than goods,” which resulted in a significant rally in commodities.

Technicals optimize entry and exit points. Based on correct fundamental judgment, using technical analysis to pinpoint precise buy and sell timings can greatly improve success rates and reduce risks.

The correct approach combines both—fundamentals need technical confirmation, and technicals should be guided by fundamentals.

Summary

The essence of the commodities market is in re-pricing the global industrial chain. From an investment perspective, understanding the liquidity characteristics of quality commodities (crude oil, copper, aluminum, gold, silver, soybeans, corn, sugar, cotton), combined with fundamental analysis and technical confirmation, is the right path to participating in the commodities market. Remember: good commodities share common features such as ample liquidity, global pricing, and fundamental-driven dynamics.