Stocks and Bonds are "Paper Assets." They represent a promise to pay. Commodities are "Real Assets." They are the tangible stuff that hurts if you drop it on your foot. From the oil that powers our cars to the lithium in our phone batteries and the gold in central bank vaults, commodities are the lifeblood of the global economy.

Investing in commodities is fundamentally different from investing in companies. A company can innovate, grow, and pay dividends. A lump of gold sits there and does nothing. Yet, commodities are essential for a diversified portfolio because they protect against the one thing that kills paper assets: Inflation.

1. The Commodity Periodic Table

Commodities are broadly categorized into three families. A savvy investor understands the drivers of each.

Au Gold

Store of Value. Moves on Fear & Rates.

Ag Silver

Hybrid. Part Monetary, Part Industrial.

Oil Crude Oil

The Master Resource. Geopolitics driver.

Gas Nat Gas

Power Generation. Volatile & Weather driven.

Cu Copper

"Dr. Copper." Indicator of economic health.

Li Lithium

The New Oil. Critical for EV Batteries.

2. Gold: The Crisis Hedge

Gold is unique. It is not an industrial metal (mostly); it is a currency. It is the only currency in the world that is not someone else's liability.

Why Hold Gold?

  1. Currency Debasement: Central banks can print unlimited paper money (Dollars/Rupees), but they cannot print gold. When money supply expands, the price of gold rises in paper terms.
  2. Crisis Insurance: In times of war or financial collapse (like 2008 or 2022), investors flee to safety. Gold has no counterparty risk.
  3. Negative Correlation: Historically, Gold moves inversely to the US Dollar and Real Interest Rates.

The Purchasing Power of $35 (1971 vs Today)

1 oz Gold
In Gold
Dinner for 2
In Cash

In 1971, $35 bought you 1 ounce of gold or a fine suit. Today, $35 buys you a pizza, but 1 ounce of gold ($2300+) still buys you a fine suit. Gold preserves purchasing power.

3. Crude Oil: The Blood of the Economy

Crude oil is the most traded commodity in the world. It affects the price of everything—transport, food (fertilizers), and plastics.

Benchmarks

  • Brent Crude: Sourced from the North Sea. The global benchmark (relevant for India).
  • WTI (West Texas Intermediate): Sourced from the US. Lighter and sweeter.

The Geopolitics of Oil

OPEC+ (Supply)
A cartel led by Saudi Arabia and Russia. They cut or increase production to manipulate global prices.
USA (Swing Producer)
The shale revolution made the US the world's largest producer, reducing OPEC's power.
China (Demand)
As the world's factory, China's economic health dictates oil demand. If China slows down, oil crashes.
Strait of Hormuz
A tiny choke point in the Middle East. 20% of world oil passes here. Any conflict here spikes prices instantly.
The "India Effect": India imports 85% of its oil. When oil prices rise, India's trade deficit widens, inflation rises, and the Rupee falls. High oil is bad for Indian equities but good for Oil exploration companies (like ONGC).

4. Industrial Metals: The Green Transition

We are entering a "Commodity Supercycle" driven by the shift to Green Energy. Solar panels, Wind turbines, and Electric Vehicles (EVs) require massive amounts of metal.

  • Copper: An EV uses 4x more copper than a petrol car. "Dr. Copper" is also a leading indicator of global economic health because it is used in construction and manufacturing.
  • Silver: Critical for solar panels (photovoltaic cells) and electronics. It is both a precious metal (money) and an industrial metal.
  • Lithium & Cobalt: The battery metals. Supply is concentrated in unstable regions, making them volatile.

5. How to Invest in Commodities

Retail investors should generally avoid buying physical barrels of oil or tons of copper. Here are practical ways to get exposure:

For Gold/Silver:

  • SGB (Sovereign Gold Bonds): Best for Indians. 2.5% annual interest + Tax-free capital gains at maturity.
  • Gold ETFs: Liquid and easy to trade on the stock exchange.
  • Digital Gold: Convenient but high spreads (buying/selling difference). Avoid for large amounts.

For Oil/Metals:

  • Commodity Futures (MCX): Only for traders. High leverage and high risk. Not for long-term investing.
  • Commodity Stocks: Buy companies that mine/produce the commodity.
    Example: Buy Exxon/Chevron for Oil exposure. Buy Freeport-McMoRan/Hindalco for Copper. This gives you leverage (profits rise faster than the commodity price) and dividends.
  • Global ETFs: Funds like GLD (Gold) or USO (Oil) allow direct exposure via US markets.

Summary of Module 6

Commodities are the "Real Assets" that anchor a paper portfolio.
• Gold is insurance against government stupidity (money printing).
• Oil is a play on geopolitical tension and energy demand.
• Metals are a play on the future of technology and green energy.

A standard global portfolio might hold 5-10% in Gold and some exposure to energy stocks. In the next module, we will discuss the practical tools to buy these global assets: Global ETFs and ADRs.