As the name suggests, ‘hard commodities’ are items that are often rock solid: precious metals, iron and other minerals. However, this term also encompasses anything this is mined or extracted from the Earth, such as oil and energy. Previously, we took a look at what is known as soft commodities, and now we are turning the other way to look at the background of hard commodities.
What are Hard Commodities?
The list of commodities that fall under this category include oil, energy and even gold. Within this category, gold reigns supreme. It has long been the favorite, reliable investment for the entire world as an inflation hedge and wealth preservation asset.
Hard Commodities and the Economy
A lot of the contracts that lie within the hard commodities category can be used as economic health indicators. This is especially true for any country that is built around a hard commodity, like Chile. Chile is reliant on the health of and demand for copper, which accounts for nearly half of its exports. Copper is commonly used in new construction and is a good gauge for housing markets.
The value of gold is also a way to measure the health of the world’s economy. For example, during the Great Recession, the purchase of gold rose at alarming rates and other commodities are still catching up to its prices. This is because gold is considered the safe haven from market risk.
The Volatility of Hard Commodities
Generally speaking, hard commodities are less volatile than soft commodities. However, this does not mean that every commodity is without volatility. The trade volume is much larger, which creates more of a buffer from rapid fluctuations in either direction. Due to the way hard commodities are collected, they are not always directly affected by the weather. They are, however, influenced by factors such as trade restrictions, conflicts, demand and other related events within the market.
Hard commodities are a deep market consisting of massive players such as crude and gold. While there is still risk within this section of the market – currently the OPEC deal is stressing the markets with Iran backing out – hard commodities provide a lot of opportunity.