Factors that Affect the Price of Commodities

Commodity trading is a term used to describe a type of trading that involves buying and selling commodities such as grains, oil, or precious metals. 

Commodities are divided into two broad categories: agricultural commodities and industrial metals. 

Agricultural commodities include corn, wheat, soybeans, sugar, rice and other grains. Industrial metals include copper, aluminium, gold and silver. 

Today, in this blog we will learn about the 7 factors that affect the price of commodities.

7 Factors Affecting the Price of Commodities

Cost of Production

The cost of production is one of the factors that affect the price of commodities, which includes all expenses related to the production of a product. 

For example, if a manufacturer must pay for wages, rent and other costs associated with its factory, these are included in the cost of production.

Demand

When it comes to commodities, demand is what drives prices. If there is high demand for a commodity, the price will be higher. 

This is because there are more people willing to buy the commodity at a higher price. However, if demand is low, the price will be lower. This is because fewer people are willing to buy the commodity at a high price. 

Supply

Supply is how much goods or service has been made available to consumers over a period of time. 

If there is an increase in supply but no change in demand, then prices will fall as producers have less work to do and also because more people can afford goods at lower prices than before.

Current State of the Economy

The current state of the economy is one of the factors that affect the price of commodities in India. If there is any economic instability or war, terrorism etc., it may affect commodities prices.

The Availability and Cost of Raw Materials, Labour and Electricity

These three factors also affect commodities prices. If there is an increase in the supply of raw materials, labour or electricity due to natural calamities, it may affect the price of commodities trading in India. 

Similarly, if there is an increase in demand for these products due to natural calamities, it may also affect prices for commodities trading in India.

Political Instability

In India, the price of commodities is directly affected by political instability. When there is a war or an attack on a major city in India, there will be a decrease in the demand for commodities such as food and oil. This will also affect the price of these commodities. 

For example, if there is a war between two nations, then the demand for commodities may decrease and so will their prices.

Weather Conditions

Weather conditions are also very important when it comes to determining the price of commodity trading in India. 

If there is a drought in any part of India, then people will not be able to grow their food which means that they will have to depend on other sources of food such as vegetables and fruits. 

This can affect the price of all such items because farmers do not have enough money to buy seeds or fertilisers. This means that all such items will become more expensive than usual rates due to a lack of supply from farmers who are already suffering from drought conditions.

Is it Risky to Invest in Commodities?

The Indian market is largely dominated by small investors, who are attracted to the higher returns on offer compared with other asset classes. But there can be no doubt about the fact that investing in commodities can be risky.

Commodity prices vary across different commodities as well as over time and location. This means that you need to be aware of these differences before you start investing in them. 

For example, crude oil prices are more volatile than gold prices and it’s therefore important to take into consideration various factors when deciding on an investment strategy for your portfolio. You need good knowledge of the market to invest in commodities.

But not everyone has the time or skill to get involved in trading. That's where TradingBells comes in, acting as your financial advisor. Besides being a registered broker, we are also a SEBI registered investment advisor and provide one of the finest research services to our clients.

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