{"menuItems":[{"label":"How can I invest in commodities?","anchorName":"#how"},{"label":"What are commodities?","anchorName":"#what-are-commodities"},{"label":"Are commodities volatile?","anchorName":"#are-commodities-volatile"},{"label":"Types of commodities","anchorName":"#types-of-commodities"},{"label":"Purchasing the commodity","anchorName":"#purchasing-the-commodity"},{"label":"Commodity futures contracts","anchorName":"#commodity-futures-contracts"},{"label":"Buying commodity exchange traded funds (ETFs)","anchorName":"#buying-commodity-exchange-traded-funds-etfs"},{"label":"Buying stocks and shares in companies that produce commodities","anchorName":"#buying-stocks-and-shares-in-companies-that-produce-commodities"},{"label":"Are commodities a good investment?","anchorName":"#are-commodities-a-good-investment"},{"label":"Compare share trading platforms","anchorName":"#compare"}]}
Commodities are often an overlooked component of an investment portfolio but can help investors smooth out returns. This is because both soft and hard commodities have an overall positive return over the long run and act as a hedge against inflation.
This guide will help you find out why they might have volatile prices, whether they're a good investment and how you can invest in them from Australia.
How can I invest in commodities?
There are 4 different ways that you can invest in commodities:
Commodities are basic natural resources such as oil, food and metals. They can be thought of in some ways as the basic building blocks of our economy.
Commodities are most often used in the production of goods and services. If you are thinking about commodities, basically think of the raw materials used in manufactured finished goods.
There are 2 categories of commodities:
Hard commodities are those that need to be mined or drilled to be found, such as metals and energy products.
Soft commodities are those which are grown, like corn and wheat.
Are commodities volatile?
Commodity volatility (how much the price moves up and down) is generally reflective of supply and demand. If there were loads of avocados grown just as everyone decided they didn't like guacamole anymore, then the price of your average avocado is likely to go down. If a worldwide virus leads to everyone panic buying toilet rolls, you're likely to see the price rise.
Due to supply and demand, the volatility of commodities tends to be higher than for other types of investment, but this depends entirely on the commodity.
Types of commodities
This isn't an exhaustive list of commodities, but it gives you a good idea of what can be considered to be a commodity.
Agricultural products. These are soft commodities such as corn, cocoa, coffee, wheat, soybean, coffee, orange juice, oats and lumber.
Livestock and meat. These are soft commodities. Think of items such as live cattle, beef, pork and milk.
Energy products. These are hard commodities. They include natural gas, coal, oil, ethanol and propane.
Metals. These are hard commodities. These commodities can be broken into 2 types: precious metals, such as gold, silver, platinum and bronze, and industrial metals, such as copper, aluminium, zinc and tin.
Purchasing the commodity
You can choose to invest in a commodity by purchasing the commodity.
In Australia, you can do this by looking for a dealer that sells the commodity and purchase it from them. You can choose whether you want to eventually sell it back to the original dealer or to sell it to someone else.
This is often done with gold and silver, but you'll need to ensure that you have somewhere to store the commodity between buying and selling it.
Commodity futures contracts
This is probably the most common way to trade commodities. With futures contracts, you are agreeing to purchase commodities at a specified point in the future. These were created for sellers like farmers, who would start growing a type of commodity, such as wheat, long before it could actually be sold to help manage the financial risk.
Nowadays, futures contracts aren't solely for farming. You can purchase futures contracts in just about anything, and they don't always end with physical items.
Physical commodities trading is only available to advanced traders or corporations. In Australia, retail investors can trade commodities via contracts for difference (CFDs). These are derivatives contracts where you're not actually trading the underlying asset, instead, you're speculating on the price volatility of commodities. Traders typically use leverage, which can make CFDs a lot riskier than stock trading. But remember, trading CFDs is significantly more risky than trading traditional shares due to factors including leverage.
Disclaimer: General information only. All forms of investments (and in particular, trading CFDs, commodities and forex) carry significant risk, including the risk of losing more than the invested amounts, market volatility and liquidity risks. Past performance is no guarantee of future results. Such activities are not suitable for most investors.
We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
Trading CFDs and forex on leverage is high-risk and you could lose more than your initial investment. It may not be suitable for every investor. Refer to the provider’s PDS and consider the risks before trading.
Buying commodity exchange traded funds (ETFs)
Commodity ETFs allow you to invest in a series of different firms or companies, allowing you to spread your investment out and reduce the risk.
ETFs are a much simpler way of accessing the stock market, so they're quite well suited to you if you're a newbie. There are loads of ETFs in Australia for a huge range of different commodities, so you have plenty of choice.
We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
Buying stocks and shares in companies that produce commodities
Which stocks and shares you choose to purchase will depend on what specific commodity you fancy investing in. Do some research into the commodity you want to invest in to find out some companies that produce it and buy shares in those companies.
You might need to know your way around the Australian stock market to buy shares. The share trading platform that you choose to use will have some guidance to help you along the way.
Are commodities a good investment?
All investing carries risk, but many commodities are items that consumers continue to buy even in a recession. Everyone will still need to eat, for example, so some people view commodities as less risky, but within that, there will be a huge range – oil is a commodity and can be highly volatile.
We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
Important information: Powered by Finder.com.au. This information is general in nature and is no substitute for professional advice. It does not take into account your personal situation. This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for most investors. You do not own or have any interest in the underlying asset. Capital is at risk, including the risk of losing more than the amount originally put in, market volatility and liquidity risks. Past performance is no guarantee of future results. Tax on profits may apply. Consider the Product Disclosure Statement and Target Market Determination for the product on the provider's website. Consider your own circumstances, including whether you can afford to take the high risk of losing your money and possess the relevant experience and knowledge. We recommend that you obtain independent advice from a suitably licensed financial advisor before making any trades.
Zoe is a writer for Finder specialising in investment and banking. Zoe has a BA in English literature and several years of experience in writing about all things personal finance. She has a particular love for spreadsheets, having also worked as a management accountant. In her spare time, you’ll find Zoe skating at her local ice rink.
How likely would you be to recommend finder to a friend or colleague?
0
1
2
3
4
5
6
7
8
9
10
Very UnlikelyExtremely Likely
Required
Thank you for your feedback.
Our goal is to create the best possible product, and your thoughts, ideas and suggestions play a major role in helping us identify opportunities to improve.
Important information about this website
finder.com.au is one of Australia's leading comparison websites. We are committed to our readers and stands by our editorial principles
We try to take an open and transparent approach and provide a broad-based comparison service. However, you should be aware that while we are an independently owned service, our comparison service does not include all providers or all products available in the market.
Some product issuers may provide products or offer services through multiple brands, associated companies or different labeling arrangements. This can make it difficult for consumers to compare alternatives or identify the companies behind the products. However, we aim to provide information to enable consumers to understand these issues.
We make money by featuring products on our site. Compensation received from the providers featured on our site can influence which products we write about as well as where and how products appear on our page, but the order or placement of these products does not influence our assessment or opinions of them, nor is it an endorsement or recommendation for them.
Products marked as 'Top Pick', 'Promoted' or 'Advertisement' are prominently displayed either as a result of a commercial advertising arrangement or to highlight a particular product, provider or feature. Finder may receive remuneration from the Provider if you click on the related link, purchase or enquire about the product. Finder's decision to show a 'promoted' product is neither a recommendation that the product is appropriate for you nor an indication that the product is the best in its category. We encourage you to use the tools and information we provide to compare your options.
Where our site links to particular products or displays 'Go to site' buttons, we may receive a commission, referral fee or payment when you click on those buttons or apply for a product. You can learn more about how we make money.
When products are grouped in a table or list, the order in which they are initially sorted may be influenced by a range of factors including price, fees and discounts; commercial partnerships; product features; and brand popularity. We provide tools so you can sort and filter these lists to highlight features that matter to you.
Please note that the information published on our site should not be construed as personal advice and does not consider your personal needs and circumstances. While our site will provide you with factual information and general advice to help you make better decisions, it isn't a substitute for professional advice. You should consider whether the products or services featured on our site are appropriate for your needs. If you're unsure about anything, seek professional advice before you apply for any product or commit to any plan and read any disclosure documents (such as any Target Market Determination (TMD) and/or Product Disclosure Statement (PDS)) issued by the provider before making a decision.
Providing or obtaining an estimated insurance quote through us does not guarantee you can get the insurance. Acceptance by insurance companies is based on things like occupation, health and lifestyle. By providing you with the ability to apply for a credit card or loan, we are not guaranteeing that your application will be approved. Your application for credit products is subject to the Provider's terms and conditions as well as their application and lending criteria.
Please read our website terms of use and privacy policy for more information about our services and our approach to privacy.
