01/30/2026

7 min read

What are commodities and how do people invest in them?

Commodities are physical resources essential for the production of goods in the global economy. These include basic materials such as ores, wood, oil, coal and agricultural commodities. Such goods form the foundation of many industries and influence both global production and the trade of commodities. As assets, they're closely tied to the economy and the demand for specific resources.

Many investors use commodities as a form of investment to diversify their portfolios and reduce risk. Compared to traditional assets like stocks, ETFs and bonds, commodities offer several advantages. But how can you invest in commodities as part of your investment strategy? And what types of commodities and investment options are there?

Meaning: Commodities are unprocessed materials from nature used as resources in the production of goods and services, and traded on global commodity markets.
Examples: Commodities can be divided into various categories, for example into basic materials (e.g. coal, crude oil, ores as well as metals like copper and iron), agricultural commodities (e.g. wood, wheat, coffee), auxiliary materials (e.g. chemicals, glue, paints), secondary commodities (e.g. recycled paper, scrap metal).
How to invest: You can invest in commodities through the direct purchase of physical assets like gold or silver (for example in the form of bars or certificates), or via exchange traded commodities (ETCs) that track the price of commodities.
Advantages: Investing in commodities diversifies your portfolio and can provide financial security in times of inflation or economic uncertainty.

Definition: What is a commodity and what is raw material?

Commodities are physical resources that serve as the foundation for production processes across many industries. They include unprocessed substances from nature, such as agricultural commodities and energy sources, as well as processed commodities used as base materials in the manufacture of consumer and industrial goods.

Characteristics of commodities include:

Standardisation: Commodities are standardised to the extent that they are available in comparable quality from different suppliers, ensuring their interchangeability.
Basis for production: Commodities serve as the foundation for producing complex products and are the starting materials for many services across various industries.
Commodity trading: You can trade commodities on the stock exchange and generate profits when prices rise.
Asset class: Commodities are considered an alternative form of investment that can help you diversify your portfolio.

What types of commodities are there?

Commodities can be divided into different categories of resources, each serving different functions in production and the economy. The quantity of available commodities has a significant impact on price formation and the commodity market.

If you're looking to invest in commodities, it helps to understand what commodities are and what types exist, as each category comes with its own market conditions, opportunities and risks. This knowledge enables you to invest your money in the commodities that best suit your investment strategy and risk appetite. Examples of commodities include:

Energy and metal commodities

Fossil resources: e.g. crude oil, natural gas, coal and their reserves
Metals (from ores): e.g. iron, aluminium, copper, gold, zinc
Minerals: e.g. salts, phosphates

Agricultural and renewable resources

Grains: e.g. wheat, maize, rice, oats
Livestock: e.g. cattle, pigs, poultry
Plants: e.g. soybeans, cotton, sugar, rapeseed
Wood and forestry: e.g. wood for furniture, construction and energy use
Other: e.g. leather, dairy products, coffee, cocoa

Basic materials are the primary components of a product, which are further divided into primary commodities and secondary commodities.

Primary commodities are resources directly extracted from nature, such as wood or metals from ores.
Secondary commodities are obtained through recycling, such as metals from scrap, and serve as a foundation for the circular economy by conserving natural resources.

Additionally, there are auxiliary materials required for production processes that don't end up in the final product, such as glue or paints. These materials play a supporting role in manufacturing.

How to invest in commodities

Commodities represent a distinct asset class, different from traditional investments like stocks and bonds. They can play a strategic role in a balanced portfolio by reducing investment risk and serving as a hedge against economic fluctuations and inflation. There are two main ways to invest in commodities:

Physical Commodities

One way to invest in commodities is to purchase commodities directly. Examples include gold, silver or other valuable metals that you can acquire in the form of bars or coins. Direct purchases of this kind require physical storage, which can involve additional storage and insurance costs.

You can also buy certificates that confirm your ownership of physical gold, silver or other precious metals. Certificates offer the advantage of avoiding storage and insurance costs, as the metals are usually held by specialised custodians. However, management fees and premiums on the purchase price may apply, which can affect the total cost of the investment.

ETCs (exchange traded commodities)

Another way to invest in commodities is by purchasing ETCs, which track the price development of a specific commodity or a basket of commodities. ETCs are securities that allow you to benefit from changes in commodity prices without owning the physical raw material. This type of investment allows commodities to be traded easily and integrated into a digital portfolio.

ETFs vs. ETCs: what’s the difference? ETFs and ETCs are exchange-traded products that offer access to commodities. However, they differ in their structure:

ETFs are exchange-traded funds that aim to automatically replicate the performance of a specific index, such as the MSCI World, as accurately as possible. They invest in a basket of assets, allowing broader diversification by covering multiple commodities or companies.

ETCs, on the other hand, track the price performance of individual commodities such as gold or crude oil, allowing for a more targeted investment in specific commodities.

You can also invest indirectly in commodities by investing in specific stocks or ETFs. These investments allow you to benefit from the performance of the commodity markets without investing directly in the commodities themselves. By purchasing stocks in mining companies or energy firms (e.g. producers of oil or natural gas), you can take part in the economic success of businesses that extract and sell commodities. ETFs focused on the commodity sector offer broad diversification and allow you to invest in multiple companies at the same time.

Want to learn more about investing in stocks and ETFs? Read our guides “Investing in ETFs” and “Investing in stocks”.

With Bitpanda, you can invest in stocks, ETFs, cryptocurrencies and commodities such as precious metals, and manage your portfolio easily. Take advantage of the opportunity to combine stocks, ETFs and commodities in one portfolio to build your wealth over the long term and ensure diversification.

For more information on how to invest in securities, read our article “Investing in securities: building wealth with shares, ETFs and ETCs”. Here you'll find a detailed overview of how to invest in different asset classes on Bitpanda to achieve your financial goals.

New to Bitpanda? Register your account today!

What determines the value of commodities?

The value of commodities on the commodities market is determined in part by the interaction of supply and demand on global markets, as reserves can influence long-term availability and therefore the future price. A wide range of economic, political and environmental factors, as well as the quantity of available resources, also affects pricing. If you're planning to invest in commodities, it's helpful to understand the factors that shape the market so you can make informed investment decisions.

Supply and demand:

Demand: A rising demand for a raw material usually leads to higher prices, as larger quantities are needed for the production of goods and services.
Supply: If supply decreases, for example due to limited reserves or low stock levels, prices rise, while oversupply or a saturated market with large reserves leads to a price decline.

Economic and political factors:

Economic growth: Strong global economic growth typically increases demand for commodities, as more goods and services are needed.
Political events: Political conflicts can disrupt supply chains and reduce the availability of commodities, which may lead to sudden price volatility.

Currency fluctuations and inflation:

Currencies: Since many commodities are traded in US dollars, exchange rate changes have a direct impact on their prices. A weaker dollar generally pushes commodity prices up, as foreign buyers with stronger currencies can purchase more for their money.
Inflation: Inflation can increase demand for commodities, as they're considered value-preserving assets that act as a hedge during times of rising prices and decreasing purchasing power.

Other factors:

Speculation: On commodity exchanges, speculators often influence prices through their buying and selling activity, betting on future price movements.
Production costs: The costs involved in extracting and processing commodities, such as through new technologies or access to larger reserves, can influence the value of commodities.
Environmental conditions: Especially for agricultural commodities like coffee, wheat or cotton, weather events such as droughts or floods can strongly impact supply and lead to significant price fluctuations.

Why should investors put money into commodities?

Commodities offer an attractive option for investors to diversify their portfolio, as they often show low correlation with traditional asset classes such as shares and bonds. This means commodities often fluctuate independently of other markets, helping reduce overall risk and potentially offset losses in other areas. By putting money into commodities, you can benefit from the development of different sectors and make your portfolio more resilient to market changes.

Overview of the main reasons to invest in commodities:

Diversification: Commodities generally behave independently of traditional asset classes, helping to spread risk across your portfolio and offering protection against market volatility.
Inflation hedge: Commodities often act as a hedge against inflation, as their prices usually rise when inflation increases, making them a value-stable alternative to fiat currencies.
Benefit from global trends: Investing in commodities allows investors to benefit from long-term global developments, such as the energy transition, which increases demand for commodities like lithium, cobalt, copper and aluminium.
Potential returns: Investors can profit from increases in the value of commodities, as rising prices are often driven by higher industrial demand, boosting market value and offering potential for returns.
Market balance: Commodities tend to perform well in times of economic uncertainty or currency fluctuations, as prices often rise when markets are affected by geopolitical or economic instability.

Investing in commodities can be a smart addition to your portfolio. Commodities reduce volatility, spread risk and can serve as a potential hedge against inflation. Especially for investors looking for stability and aiming to diversify beyond traditional markets, commodities offer a compelling opportunity to benefit from global market developments and secure long-term wealth. If you're looking to build a balanced and more resilient portfolio, commodities might be the right investment for you.

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Frequently asked questions about commodities

We answer the most commonly asked questions about commodities.

How do you invest in commodities?

You can invest your money in commodities in several ways, either directly in physical precious metals like gold or indirectly via securities that track commodity price movements.

Direct investment

Physical commodities: Buying physical precious metals such as gold bars or silver coins allows you to own a tangible asset.
- Advantage: Physical commodities are considered by many investors to be an inflation hedge and are often described as a “safe haven” in times of crisis.
- Disadvantage: Storage and insurance costs lead to additional expenses, and trading is less flexible with this type of investment.
ETCs: Exchange traded commodities focus on one or more specific commodities and track their price performance, often through futures or other financial instruments.
- Advantage: ETCs provide access to commodities that are difficult to store.
- Disadvantage: ETCs are often riskier than ETFs, as they are less diversified and may include leveraged products that amplify fluctuations.

Indirect investment

ETFs: Commodity funds track the performance of an index focused on commodities and offer diversification.
- Advantage: ETFs are broadly diversified and often easier to manage than purchasing individual commodities, as they don't require you to select and manage specific positions.
- Disadvantage: Commodity ETFs often invest via futures (financial contracts obligating the purchase or sale of a commodity at a set price on a future date), which increases complexity.
Commodity shares: This refers to investing in companies operating in the commodity sector, such as oil, mining or agricultural firms.
- Advantage: Investors can benefit from the performance of these companies without needing to buy or store commodities themselves, gaining potential returns through share price increases and dividends.
- Disadvantage: The risk of commodity shares is not only linked to commodity prices but also to company-specific factors such as financial performance and production costs.

How do commodities protect against inflation?

Certain commodities are seen as a hedge against inflation because they hold intrinsic value, which tends to rise along with increasing prices. Especially during periods of unexpectedly high inflation, their prices may grow more than those of shares or bonds, making them a strong safeguard. However, commodities can also be more volatile, with prices affected by economic cycles or political events.

What’s the difference between ETFs and ETCs?

ETFs and ETCs are both exchange-traded products that allow you to participate in commodity trading, but they differ in structure and what they track:

ETFs offer broad diversification for your investment, allowing you to invest in a range of shares, bonds or other securities with a single ETF unit.
ETCs track the price movements of individual commodities or baskets of commodities, such as gold, oil or copper, and offer more targeted exposure to a specific commodity or group of commodities.

How can I invest in commodities like gold or oil on Bitpanda?

On Bitpanda, you can easily invest in commodities such as gold, oil and many other resources. The platform allows you to invest in ETCs that track the price development of commodities like gold, silver or oil. This lets you benefit from commodity price fluctuations and potential price increases without needing to own the physical commodity. For a simple and flexible investment, you can also invest in ETFs that replicate commodities or commodity indices. You can find out more about how to invest in commodities on Bitpanda at Bitpanda Commodities.