Commodities

Determining Commodity Prices

1

Like most other types of investment, commodity prices are driven by supply and demand. If demand for a particular commodity rises when there is limited supply, the value of the commodity will increase.

2

Likewise, if demand falls and there is a large supply, the value of the commodity will fall. Though, if demand rises and supplies increase, there will be no change in the value of the commodity at all.

3

The supply of a commodity can be affected in a number of ways, including employment issues, poor weather or new regulations (i.e. bad weather may damage crops and disrupt the supply of corn). 

4

The demand of a commodity can also change due to economic shocks, natural disasters or political issues (i.e. when inflation increases, investors will often turn to gold to protect the value of their capital).

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