Commodities

A commodity is a basic good that is interchangeable with other goods of the same type. They are often used as inputs in the production of other goods or services and while the quality of a given commodity may differ slightly, it is essentially uniform across producers.

Commodities—precious metals, agriculture goods, and oil & gas—have often been positioned as hedges against inflation. However, commodities tend to respond to changes in the dollar's relative strength in international markets rather than domestic inflation pressures.

Commodities work differently in spot markets and derivatives markets. In spot markets, the buyers and sellers exchange cash for immediate delivery of the commodity. In derivatives markets, the buyers and sellers exchange cash for the right to future delivery of that commodity. Derivatives holders will often roll over or close out their positions before delivery can happen since they aren’t necessarily looking to hold the commodity, but just speculate on its value.

The automobile industry is one of the largest consumers of the world's raw materials. Some of the most common materials that industry relies on include aluminum, glass, and the iron ore to make steel, as well as petroleum products used to make plastics, rubber, and other special fibers.