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Commodities are important to the world economy, especially gold and oil, which serve as primary global economic indicators.
They can trade futures contracts, which is the oldest way to invest in commodities, especially oil. Since oil is harder to store than gold, it requires larger storage facilities, which add transportation and insurance costs. While gold can be stored more conveniently, and it does not deteriorate over time.
This is why gold offers many different investment options, and it was chosen as the first commodity launched in the Gold Bullion Securities ETF on the ASX in 2003, according to the World Gold Council.
In this lesson, you will learn basic commodities, the differences between gold and oil, potential risk, and why liquidity and volatility are important in the commodity market.
The commodity is the raw material that is important for manufacturing other goods. They must meet the commodity's trading basis quality standards, such as purity, grade, and physical quality.
There are hard commodities and soft commodities that can be traded using spot prices, futures, options on futures, and forwards on the major global markets as follows:
Hard commodities such as oil, gold, and natural resources are widely traded on The Intercontinental Exchange (ICE), which is known as a head company of the New York Stock Exchange (NYSE) and the Chicago Board of Trade (CBOT), offers futures and options trading for the commodity market.
Soft commodities such as agricultural products like cocoa, avocado, and sugar cane, which can be traded on the New York Mercantile Exchange (NYMEX) is the main global energy trading marketplace, and the London Metal Exchange (LME) is the world's leading industrial metal exchange.
Gold is one of the most active trade commodities and is available through the Forex market. While oil is also considered a commodity and traded in the commodity market. Both assets are moving against the US dollar, which makes them different than other assets. When the global environment is uncertain, investors often move their money to safe assets.
Gold is considered a safe haven, and it usually rises during a global crisis. While Oil usually rises when global demand increases, the conflict between Iran and the USA over the Strait of Hormuz has raised oil prices because it is the world's biggest crude oil tanker route.
According to Investreet Academy, the mentioned factors influence oil and gold prices, as well as the differences as investment assets:
Gold
Oil
The gold price is influenced by supply and demand. When the demand increases, the gold price increases. When demand is lower, the price of gold falls.
The oil price also influenced supply and demand. When supply increases, oil prices tend to fall as well. But if the oversupply or falling demand can drive prices down.
Gold is a safe-haven asset when inflation increases. People prefer to hold their money in gold because its price rises faster than inflation.
Oil prices reflect the global economic growth. When economic growth occurs, oil prices tend to increase, but when an economic slowdown occurs, oil prices tend to fall.
The US dollar is strengthening relative to gold. When the gold price increases, the US dollar strength decreases, and vice versa.
When there's a shock geopolitical event that negatively impacts supply chain conditions and increases volatility, this usually raises oil prices, as seen in the Middle East and Russia.
Central banks tend to hold large gold reserves to diversify their nations' currency values. When they sell their reserves, it usually increases the gold supply, leading to potentially lower prices. The central bank's policies have a significant impact on the gold price, particularly interest rates. It's important for old investors to make their buy-or-sell decisions based on interest rates.
OPEC is responsible for oil supply by coordinating the policies of its member countries. This often increases or reduces oil output and has a significant impact on global oil supply.
Normally, gold and oil prices have a positive correlation, but their relationship is driven by common factors such as the global crisis, inflation, and geopolitical conflicts.
The Middle East conflict has increased the oil price due to the uncertainty. While the gold price has increased due to higher demand for a safe-haven asset.
However, the relationship between gold and oil isn't guaranteed, and it's more closely tied to global conflict, such as war.
Commodity investing offers diversification benefits and hedges against inflation, which helps mitigate inflation risk during periods of high inflation. This is why many investors choose commodities to protect their wealth in the portfolio during a high inflation period.
For example:
The chart below shows how commodities perform in low- and high-inflation environments and how this influences investment results. The data is generated by the Vanguard Capital Markets Model (VCMM) as of September 30, 2018.
By using benchmark indices to estimate returns for various assets, such as U.S. and non-U.S. equities, fixed income, and commodities.
It is not actually a return or forecast guarantee of the future performance. It's for a case study that has 10,000 simulations per asset result, which can change over time.
Source: Commodity investing and its role in a portfolio; Corporate Vanguard
The result shows a positive sign, as the percentage has increased in line with inflation. According to Vanguard, a balanced 60/40 portfolio allocates only 1% to commodities during periods of lower inflation, but can allocate 5% during periods of higher inflation.
Similar to the 80/20 rule, commodity diversification can increase from 4% to 10.3% during high inflation. This shows how the market performs during an inflation shock and how prices and losses on traditional assets, such as bonds and stocks, are affected.
The commodity can serve as a diversification tool and an inflation hedge, helping maintain the portfolio's purchasing power amid global economic uncertainty.
Liquidity and volatility are two factors investors consider when assessing the commodity market, as they show how easy it is to trade and how much the price changes over time.
Liquidity measures how quickly an asset can be bought and sold in the financial market, such as raw materials like oil, gold, cocoa, or sugar, without causing drastic price changes.
When the market has high liquidity, which means that the market participants can enter and exit the market quickly, which has lower risk, the lower liquidity leads to wider spreads.
Gold is one of the most traded commodities, trading at nearly $4,700 per ounce as of May 2026, while the Brent crude oil price has risen from $61 to $126, then pulled back to $95, according to Gold Silver[6] .
This shows that Gold and Crude oil are liquid assets, which makes it easier to buy and sell both assets. Gold is considered a safe asset that has been reserved by nations’ central banks, financial institutions, and investors.
While Oil is heavily influenced by global demand and supply, it is an important factor in global economics, used for energy, transportation, and industry.
Volatility in the commodity market is driven by regional supply chain disruption, the global economy, and global tension. It occurs when the price moves quickly in response to unexpected global events. When market volatility increases, prices move up and down quickly. But if the market has lower volatility, it means prices stay steady.
Source: Maro Bond
Due to the Strait of Hormuz conflict, oil supply has been reduced to 6.7 million barrels per day. Rising oil prices in future contracts and options reflect financial flows and investors' expectations, which can increase market volatility.
Source: TradingView; Crude Oil Brent Cash, 1H
According to Gold Broker, Oil trading volume has increased by more than 1,000% since the beginning of the year, highlighting the volatility of 2026. Many retail investors sought to profit from oil price volatility. Later on, crude oil prices dropped as high-leverage liquidation positions were closed, as expected.
Commodities investment includes hard commodities such as gold, copper, and oil. As well as soft commodities like sugar, cocoa, and coffee.
Gold and Oil move differently from the US dollar, making them unlike other investment assets.
Gold is viewed as a safe-haven asset, while oil is considered a major global economic indicator.
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