Basically these are raw materials such as gold, silver, soya beans, sugar, coffee, steel, etc. Many commodities (such as gold) are traded in markets around the world. The gold price is set in the London market and the local mining companies have no control over it. So commodity companies are price takers, not price makers – which makes them high risk. They normally have fixed costs which are constantly rising and they must sell their output at a price which is determined by supply and demand on an international market. Commodities go through bull and bear phases. For example, the price of North Sea Brent oil reached a high of $144 per barrel in July 2008 – only to slump back to $43 per barrel by December of the same year. More recently, in 2016, oil fell as low as $28 per barrel, but has since recovered somewhat. Consider the chart:
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Obviously, any share that is based on such a commodity (like Sasol) will be extremely volatile and risky.Disclaimer - All information and data contained within the PDSnet Glossary terms is for informational and educational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet glossary terms is based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any glossary term for any reason.« Back to Glossary Index