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.
Share this glossary term: