Don't you think the raw materials market has become much more complicated than before? Because everything from the economic situation, political variables, to climate change affects prices. That's why many investors are turning their attention to commodities.

The reason why commodity investing is attractive is simple. Because raw materials that are harvested from nature or minimally processed form the backbone of the global economy. There are various categories such as energy (oil, natural gas, coal), precious metals (gold, silver, platinum), base metals (copper, aluminum), agricultural products (soybeans, corn, wheat, coffee), each with its own unique characteristics.

In particular, the characteristic of the commodities market is high volatility. Changes in supply and demand, geopolitical risks like Middle Eastern instability, the Ukraine situation, and climate change are all reflected in prices. For example, the oil market swings with the production policies of major oil-producing countries.

Looking at data from the past few years reveals interesting patterns. Oil demand has been increasing with the global economic recovery, but if production adjustments are made, supply can increase and prices may fall. Natural gas has been trending downward long-term, due to advances in production technology and a shift toward renewable energy.

Gold continues to attract attention as a hedge against inflation, and silver’s industrial value is rising due to demand for advanced technologies like electric vehicle batteries and solar panels. Copper, with its excellent electrical conductivity, has become an essential resource in electric vehicles and renewable energy sectors. Aluminum’s demand is also increasing as the aerospace and automotive industries seek lightweight materials.

What about agricultural products? Soybeans and corn surged after the pandemic but then declined, but variables like climate change and changes in international trade agreements remain, so continuous monitoring is necessary.

Now, let’s look at ways to invest in commodities. Futures trading involves entering into contracts to buy or sell at a predetermined price in the future. It offers the potential for high returns with leverage, but losses can be significant. Products like CME’s WTI crude oil futures and COMEX gold futures are examples. The appeal is that you can trade large amounts with relatively little capital, but a deep understanding of the market is essential.

Contracts for Difference (CFD) are a way to bet on price movements without owning the actual commodity. You just predict whether the price will go up or down. Since there’s no physical storage issue, it’s easier to get started. Leverage allows large trades with small capital, but risk management tools like stop-loss are necessary.

Spot trading involves buying and selling physical assets like gold and silver. These are traded on exchanges like the London Metal Exchange (LME) or NYMEX. The advantage is owning the actual asset, which can preserve long-term value. However, storage and management costs are involved, and trading physical commodities like oil or agricultural products can be difficult due to their volume.

ETFs and funds are financial products that track commodity prices. SPDR Gold Shares (GLD) follows gold prices, United States Oil Fund (USO) tracks oil prices, and Invesco DB Agriculture Fund (DBA) follows agricultural commodity prices. They are easy to trade like stocks and allow for diversification with small amounts, making them suitable for beginners. The risk is generally lower than futures or CFDs.

Ultimately, the choice of method depends on your investment goals and risk appetite. Precious metals are safer assets, suitable for spot trading or ETFs, while oil, agricultural products, and base metals are harder to store, so approaching them via futures, CFDs, or ETFs is better.

The key is to start with small capital, gain experience, and develop expertise. Testing trading strategies with demo accounts is also a good idea. The commodities market offers high potential returns, but due to its volatility, careful approach is essential. Those who thoroughly manage risks and continuously learn about the market are the ones who ultimately succeed.