Commodities 101: a beginner’s guide for Aussie investors

What are commodities? ⛏️🌾

Commodities are physical goods, the raw materials that power the global economy.

Unlike shares or currencies, they’re tangible: mined, grown or extracted from the earth. Think:

• Gold from Kalgoorlie
• Crude oil from the Middle East
• Wheat from the Riverina
• Cattle raised in Queensland

✅ The key feature? They’re fungible, meaning one unit is interchangeable with another of the same grade, regardless of where it came from.

An ounce of gold from Australia is worth the same as an ounce from the US or China,  provided it meets purity standards. That makes commodities ideal for trading in bulk without the need to inspect each unit.

Step 1: Know the types of commodities 📦

Commodities are generally grouped into two main categories:

You might also see them classified by sector:

• Energy: Oil, natural gas
• Metals: Gold, silver, lithium, copper
• Agriculture: Wheat, coffee, cotton, livestock

✅ In Australia, metals and agricultural commodities are especially significant – we’re a major global exporter of both.

Step 2: Understand how they’re traded 📈

There are two main ways to access the commodities market:

🔹 The spot market

Buy or sell the physical commodity for immediate delivery. Used mostly by producers, manufacturers or suppliers who need the goods now.

Example: A pipe-fitting business in Sydney needs copper for a project so they’d buy copper on the spot market.

🔹 The futures market

Trade contracts that commit the buyer and seller to exchange a certain amount of the commodity at a future date but at a price agreed today.

🧠 These are often speculative trades, meaning most people buy and sell the contract, not the commodity itself. No actual cattle or barrels of oil get delivered to your door.

✅ Futures are ideal for traders who want to speculate on price movements without storing physical goods.

Step 3: Meet the players in the market 🎭

Who trades commodity futures?

Who trades commodity futures?

🎯 Gold, for example, is often used as a hedge as it tends to rise when equity markets wobble, offering protection in volatile times.

Step 4: Trade via global exchanges 🌍

Commodities are listed on specialised global exchanges, including:

• NYMEX: energy & metals
• CBOT: grains & soybeans
• London Metal Exchange: base metals like copper or zinc
• ICE: sugar, cotton, oil

Most Australian traders access these markets online via brokers that provide leveraged exposure to standard or mini contracts.

🪙 Example: Trading gold

The standard futures contract for gold is 100 troy ounces. If gold is priced at USD 2400/oz, one contract is worth USD 240,000.

Too large? Many brokers offer mini contracts (e.g. 10 oz), or CFDs as an alternative.

Step 5: Understand what drives commodity prices 🔍

Like any market, commodity prices are all about supply and demand.

But they’re also highly sensitive to external factors:

🔔 In Australia, keep an eye on RBA releases, export reports, and Chinese economic indicators – all key drivers of Aussie-linked commodities.