Logo of the KNOW NOW newsletter, composed of the letters of the word itself, and with reference to Financial Education, a BBVA and Funds People partnership. Logo of the KNOW NOW newsletter, composed of the letters of the word itself, and with reference to Financial Education, a BBVA and Funds People partnership.

Commodities: what they are, what categories exist and what are their impact

André Themudo | BlackRock

Leader of the Wealth and Asset Managers segments in the Iberian Peninsula
Develops relationships with Spanish, Portuguese and Andorra asset managers, private and retail banks, family offices and distribution platforms. This includes the distribution of Mutual Funds, Indexing Strategies and Investment Solutions for wealth clients.

June 2025 by André Themudo

In economics, a commodity is a tangible good that can be bought, sold, or exchanged for another of similar value. Commodities are the basis of the global economy, providing essential raw materials for sectors such as industry, agriculture, energy and food. As a pillar of the world economy, the absence of the commodities market would compromise entire sectors. Their price fluctuations affect production costs, inflation, supply chains, and political and business decisions.

In financial terms, commodities also function as investment instruments. Understanding them is essential for effective diversification and risk management strategies, as well as influencing exchange rates, final prices and macroeconomic decisions.

What is a commodity?

A commodity is a good produced by multiple manufacturers that has a sufficiently uniform level of quality so that there is no relevant distinction between the products of different companies. This standardization, known as fungibility, allows it to be easily traded in organized markets, such as commodity exchanges, simplifying global trade.

Raw materials such as coal, gold and zinc are examples of commodities produced according to uniform industrial standards, which facilitates their commercialization. However, not all raw materials are considered commodities. Natural gas, for example, due to its high global transportation cost, makes it difficult to set a single price. Diamonds are another case: vary too much in quality and do not exist in sufficiently homogeneous volumes to be classified as commodities.

The changing nature of commodities shows that not everything that is considered a commodity today has always had that status. The concept is associated with economic, technological, social and political factors, which are constantly changing.

When trading in a particular commodity causes excessive price instability, or when systemic risks associated with speculation arise, regulators or commodity exchanges may intervene and, in some cases, prohibit trading.

On the other hand, technological advancement and industrialization can transform previously unique or artisanal goods into standardized products, suitable for commercialization as commodities. Its status always depends on the historical context and the evolution of the markets.

Categories

In a global context, commodities are divided into three major categories, each with its own characteristics and distinct impacts on financial markets:

  • Energy commodities: include oil, natural gas and coal. Their prices are volatile, influenced by geopolitical factors, industrial demand and technological innovations. 
  • Agricultural commodities: include cereals (wheat, corn, soybeans), coffee, sugar, cotton and livestock. They are subject to seasonal and climatic variations, agricultural policies and global demand. Given their direct link to food, they influence inflation and the cost of living worldwide.
  • Metal commodities: are divided between precious metals (gold, silver, platinum) and industrial metals (such as iron, copper and aluminum), crucial for construction, industry and technology.

Markets and trading

Commodities are essential assets in financial markets, being traded through several mechanisms:

  • Futures markets: contracts that fix the future delivery price, reducing the risk of fluctuation.
  • Spot markets: Transactions with immediate delivery and payment.
  • ETF and investment funds: allow exposure to commodities without trading futures contracts.
  • Digital platforms: the evolution of online platforms has facilitated access for private investors.

Impact 

Playing a vital role in economic stability and investment strategies, commodities are considered an essential asset in protecting against inflation, offering diversification and functioning as an alternative to stocks and bonds, reducing the overall risk of portfolios.

Fluctuating commodity prices create both risks and opportunities - while some investors seek to take advantage of these changes, it is essential to carefully manage the potential for loss. These prices are particularly sensitive to the dynamics between supply and demand, reacting to global events such as conflicts, extreme weather events or decisions by large institutional players, with long-term effects on financial markets.