Recently, I was reviewing IMF data and something interesting caught my attention: between 2020 and 2022, the commodity price index skyrocketed by more than 100%. That’s no coincidence. Understanding what commodities are and how their market works has become almost mandatory for anyone who wants to diversify their portfolio.

Commodities are basically the natural resources that industry extracts to manufacture everything we consume. Oil, gold, wheat, copper, natural gas, coffee. Things that are traded like any other asset in the global market. What’s interesting is that once you understand what a commodity really is, you see it isn’t as complicated as it seems.

Broadly speaking, they are divided into four main categories. Energy dominates with 75% of global production—mainly oil, gas, and coal. Next come metals, split between precious metals like gold and silver, and industrial metals like copper and aluminum that drive construction and technology. Agriculture is also huge: soybeans, wheat, corn, coffee, sugar. And there is a smaller but real segment of livestock, with pork and live cattle.

Now, what a commodity is from an investor’s point of view is different from seeing it as a natural resource. For us, what matters is how to access these markets. You can buy the physical asset directly, but that’s complicated and expensive. The practical approach is to use financial instruments: futures, CFDs, ETFs, options, or simply shares in companies that exploit these resources.

Let’s take oil as an example. Its price moves based on economic growth, geopolitical conflicts, and OPEC decisions about production quotas. In June 2022, it reached nearly $130 per barrel, then fell by more than 40% due to recession concerns. Natural gas was even more extreme: it went from $10 to $2 in months—an 80% correction—mainly because the European winter was warmer than expected.

Metals have their own logic. Gold works as a hedge against inflation and market volatility. Copper depends on industrial activity and technological development. Aluminum is tied to the automotive and aerospace industries. The London Metal Exchange moves more than 3 billion tons annually with a value of over $15 trillion.

Agricultural commodities respond to economic cycles, energy costs, and weather events. A drought, a war, a flood—any of these can change prices drastically. That’s why the sector is so volatile but also so attractive.

In 2022, the World Bank released an interesting analysis on price divergence. While energy prices surged, metals and agriculture fell. Non-energy commodities dropped 13% in the third quarter of 2022; metals suffered due to economic slowdown and higher interest rates, agriculture fell 11% but recovered when Ukraine resumed exports.

Now, if you want to invest in these markets, you have options. You can trade futures on CME, NYMEX, CBOT, COMEX. These are standardized contracts where you agree to buy or sell a certain volume at a fixed price on a future date. Exchanges regulate all of this.

Another popular option is ETFs. Funds like Invesco DB Commodity or Invesco Optimum are listed like regular stocks, have high liquidity, and give you diversified exposure to 14 different commodities. If you prefer something more specific, there are ETFs for oil, metals, and mining. Very easy to buy and sell.

CFDs also work well. These are contracts for difference, where you only pay the difference between the entry and exit prices. You can use leverage, go short, and benefit in bearish markets. Just keep in mind that leverage multiplies both gains and losses.

If you’d rather go for something less speculative, you can invest in shares of companies in the sector. ExxonMobil has risen by nearly 300% since 2020. Chevron surpassed 260%. Shell jumped by more than 200%. Naturgy, the Spanish company, fell 38.7% over 5 years. Repsol has been more modest with just 6%. All of them pay dividends regularly.

Since 2022, there have been some interesting developments. Goldman Sachs predicted commodities could rise 43% over 12 months due to cooling Fed rates, China reopening, and a European recovery. The Baltic Dry Index, which tracks maritime shipping, has fallen since October 2021 but showed a slight recovery—potentially a positive signal.

The reality is that volatility in these markets can generate both gains and losses. A conservative investor might use a diversified ETF as a hedge against long-term inflation. When currencies devalue, commodities become more expensive, so you protect yourself through complex economic cycles.

If you’re more aggressive, you can do intraday trading, scalping, and short-term operations with futures and CFDs. But you need to understand the risks, have a plan, and possibly seek professional advice.

What matters is that you understand what a commodity is, how its price moves, and what instruments you have available. The commodities market is massive, regulated, and truly liquid. This isn’t pure speculation—it’s a genuine market that drives the global economy. If you study it well and manage risk, there are real opportunities.