The Capital Markets

CHAPTER 31Commodities: An Introduction and Overview from a Capital Markets Perspective

Bob Swarup

INTRODUCTION

Commodities are an integral facet of the financial markets and the global economy and are the oldest of all spheres of investments, predating bonds, equities, and even money itself.

One could argue without hyperbole that the story of humanity is one of commodities. Long before the small kingdom of Lydia struck the first coins in the 6th century, great nations such as Egypt, China, Phoenicia, and India were already trading wheat, spices, gold, silver, base metals, and other resources. Their interactions created the first economies and the first merchants. Their alliances, wars, and explorations were all driven by a need to have better or greater access to commodities in some form. As the Roman philosopher Cicero noted, it was the Roman merchant who went first to new areas, not the Roman soldier. The legions only came after a reason for conquest had been established.

The reason is simple. Our history and advancement over the millennia have been defined by our access to and control over the natural resources in our environment. Food and drink sustain and thrill us in equal measure while spices add variety. Base materials and metals allow us to craft tools to build our homes, cities, vehicles, and so on. Precious metals add sparkle, greed, envy, and a measure of social stature while energy is vital to propel people, societies, and civilizations forward. Early human history ...