Understanding raw materials

Raw materials are basic, unprocessed material goods that are traded on commodity exchanges. Their fundamental feature is standardization and exchangeability, which means that a barrel of Brent crude oil from one source is treated in the same way as a barrel from another, as long as it meets the same quality standards. It is this unified nature that allows for seamless, global trade and speculation on their prices, without the need to physically deliver the goods to each buyer.

The value of commodities is influenced by a combination of fundamental factors that distinguish this market from stocks or bonds. The law of supply and demand on a global scale plays a key role here. Political decisions in oil-producing countries, weather conditions in soybean growing areas, strikes in copper mines or the pace of economic growth in China directly translate into price fluctuations. An investor must therefore analyze macroeconomic data, industry reports, and geopolitical events. These fluctuations can be tracked on an ongoing basis, using many information portals specializing in macroeconomic data.

For an individual investor, raw materials play two important roles in the portfolio. First, they are a natural hedge against inflation. When the prices of goods and services rise, the prices of the raw materials from which they are produced also rise, which preserves the purchasing power of capital. Second, they offer valuable diversification. Commodity prices often move in the opposite direction to stock and bond prices, especially during periods of market uncertainty. Including them in a portfolio can therefore reduce its overall volatility and improve long-term stability.

Types of raw materials

Commodity classification helps investors understand the specifics of each market and the factors that affect its pricing. The basic division groups them into several main categories, each with different dynamics and responding to different economic stimuli. The following distinction is most commonly used:

• precious metals, including gold, silver, platinum and palladium,
• industrial metals such as copper, aluminium, zinc and nickel,
• energy resources, mainly crude oil in various grades and natural gas,
• agricultural raw materials, including cereals, oilseeds and the so-called soft commodities, i.e. coffee, cocoa, sugar or cotton.

Each of these groups has its own unique characteristics. Precious metals, dominated by gold, are seen as a "safe haven" in times of economic and political crises. Their value increases when investors lose confidence in traditional currencies and stock markets. Industrial metals, especially copper, are called the barometer of the global economy. An increase in their prices signals a recovery in industry and construction, and a decrease heralds a recession. Energy commodities are heavily influenced by geopolitics and OPEC decisions, while agricultural markets remain vulnerable to weather cycles, plant diseases and changes in countries' agricultural policies.

Understanding which category reacts to economic changes is the basis for building an investment strategy. Involvement in copper is a bet on the growth of global industrialization, while the purchase of gold is often a form of insurance against market chaos. Analytical tools, such as those offered  by Lion Money Partners, make it easier to track these relationships and identify potential opportunities in individual market segments.

How to invest in commodities

Investors have several avenues to gain exposure to the commodity market, each with different levels of risk, cost and complexity. The most intuitive method is physical purchase, for example in the form of gold bars or bullion coins. This gives you full control over the asset, but it comes with logistical issues such as safe storage costs, insurance, and lower liquidity compared to financial instruments. In the case of industrial or agricultural raw materials, physical purchase is practically impossible for an individual investor.

Derivatives, especially futures, are much more popular. Such a contract is an agreement to buy or sell a certain amount of a raw material at a fixed price in the future. This instrument allows you to use leverage, which can multiply your profits, but at the same time involves a very high risk, potentially exceeding your initial capital. Due to their complexity, futures are a tool intended mainly for experienced and active market players.

The most affordable form of investment for a wide audience are ETFs and ETC certificates. These are securities listed on the stock exchange, the price of which reflects the quotations of a specific raw material or an entire basket of them. They are bought and sold just as easily as stocks, and they have the advantage of high liquidity, low management costs, and no physical storage issues. An alternative is to buy shares in mining or production companies, e.g. gold mines or oil companies. In this case, however, the investor is exposed not only to the risk of changes in the prices of the raw material, but also to the operational risk of the company itself.

Choosing a trading platform is a crucial step. There are many brokers on the market offering access to commodity instruments. Before making a decision, it is worth checking whether a given information portal provides analyses that are crucial for the investor. Many platforms, such as the aforementioned lion money partners, offer access to various instruments, such as the lion money partners investment portal, which integrates trading functions with advanced analytical tools. Beginner investors often use the materials offered by the training portal, and dedicated training presentations can also be valuable. The knowledge can also be complemented by training presentations from lion money partners, which focus on the practical aspects of trading.

The commodity market is a separate world in the investment universe, governed by its own laws. Understanding it opens the way to effective diversification and protection of capital against inflation. It is an asset class that responds directly to material, global processes – from weather to politics. The key to success is not trying to predict all the fluctuations, but being aware of the drivers of individual markets, from gold to wheat. Choosing the right instruments, tailored to your own knowledge and risk appetite, allows you to take advantage of the potential of this fascinating market. Ultimately, any investment decision should be based on solid analysis rather than momentary emotions.