Commodities and Precious Metals

Commodities are raw materials traded on organized exchanges—oil, natural gas, gold, silver, copper, wheat, corn, soybeans, and coffee. Unlike stocks, commodities do not generate earnings or dividends; their value comes entirely from supply and demand. The spot price is the current market price for immediate delivery. The futures price is the agreed price for delivery at a future date. Contango (futures price above spot) occurs when storage costs and carrying charges push future prices higher. Backwardation (futures below spot) occurs when immediate demand exceeds supply. Understanding this structure is essential because most retail commodity investments use futures-based ETFs that are affected by these roll dynamics.