The Commodities Market

Spread betting and CFD trading companies like CMC Markets host hundreds of different markets and one of the most interesting has to be commodities. Generally speaking a commodity is anything solid that you can buy, the well-reported commodities are oil and gold, but there are a host of others that play a major role in the world economy.

As can be said for just about every market in the world, the US and China play a major role in dictating the fluctuations in price of almost all commodity groups. Each month the US announces its oil reserves, which generally sees a fluctuation in the oil price, whilst quarterly manufacturing information has an impact on most commodities, the better manufacturing is doing, the higher the price.

The great thing about the commodities market is that more than any other market, it operates on clear supply and demand principals. If the global economy is doing well and there are a lot of infrastructure projects taking place, the price of commodities goes up. If the opposite is true, the price of commodities drops. This is most clearly illustrated by the oil price over the last two years, reaching an astonishing peak of $147 a barrel just before the recession and then plummeting to the mid-thirties just six months later.

OPEC, the oil producing cartel, manipulated supply accordingly, reducing the amount of barrels they were pumping and the oil price recovered, helped by massive infrastructure projects in China and the continued development of the other BRIC countries.

Of course, spread betting companies take pains to make sure their customers keep an eye on all the information which could have an impact on their chosen market. So what sort of indicators help point to the future of the commodities market? Firstly, as mentioned above, there’s quarterly manufacturing information. Keep an eye out for major policy meetings of oil producing nations, and the projections of oil producing companies which are out in the first weeks of February.

Another important factor for the coming year is whether China has amassed large stockpiles of resources. During the recession China continued to buy, but doubt remains as to whether that was to fund ongoing projects or to stockpile for the future. If the latter is found to be true, demand will tail off, particularly from Australia (with whom China has a very productive trade agreement) and this will have a consequent impact on both share price of Australian based mining firms but also on the commodities price as a whole. An additional factor could be Chinese inflation, if it continues to increase rapidly this may see a resulting tail off in demand for overseas resources, again having a negative impact on commodity prices. As with so much else at the moment, all eyes remain on the world’s second largest economy to see what 2010 will bring.

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