Commodities

Questions & answers

Commodity prices and futures: common questions

Answer-first explanations of spot versus futures, global versus Indian prices, commodity price drivers, hedging and risk.

What are commodities in financial markets?

Commodities are physical goods or raw materials that can be bought, sold or used as the underlying asset for derivatives. SEBI's investor material groups them broadly into agricultural and non-agricultural commodities such as bullion, metals and energy. Gold, silver, crude oil, natural gas and copper are common examples.

What is the difference between a commodity spot price and a futures price?

A spot price refers to the market value for near-immediate delivery, while a futures price belongs to a standardized contract for a specified future expiry. The two can differ because of time to expiry, financing, storage, insurance, expected supply and demand, and local delivery conditions. Always identify the contract month and unit before comparing prices.

Why can Indian commodity prices differ from global prices?

A global benchmark is only one input into an Indian price. Currency conversion, the rupee-dollar rate, freight, insurance, duties or taxes, local supply and demand, quality specifications, location and the contract being compared can all create a difference. A COMEX or WTI futures quote is therefore not the same thing as an Indian retail or MCX price.

What usually moves gold and silver prices?

Gold and silver are influenced by global supply and demand, currency moves, interest-rate expectations and investor demand for precious metals. Silver also has substantial industrial use, so manufacturing demand can matter more to silver than to gold. No single macro variable explains every move, especially over short periods.

What moves crude oil and natural gas prices?

Energy prices respond to supply and demand, inventories, production decisions, weather, transport constraints, geopolitical disruptions and economic activity. Natural gas can be especially regional because pipelines, storage and weather differ by market. WTI crude and Henry Hub gas are US benchmarks, not universal local prices.

Why is copper watched as an economic commodity?

Copper is heavily used in electrical equipment, construction and infrastructure, so demand can respond to industrial activity and investment. Mine supply, treatment capacity, inventories, substitution, recycling and currency also affect price. Copper can provide economic context, but it is not a standalone forecast for GDP or stocks.

Why do businesses use commodity futures?

SEBI describes commodity derivatives as tools for price discovery and price-risk management. A producer exposed to falling prices or a consumer exposed to rising input costs can use exchange-traded derivatives to reduce uncertainty. Hedging reduces a particular price exposure; it does not remove every business or market risk.

Are commodity futures high risk?

Yes. Futures are leveraged, expire on fixed dates and can move sharply. Contract size, margin, expiry, settlement and delivery rules matter. A benchmark price page is useful for context, but anyone considering a trade should read the current exchange contract specification and understand the maximum loss they can tolerate.