Commodity Trading in Australia

Commodities are raw materials that are bought, sold and used throughout the global economy. They include precious metals such as gold and silver, energy products such as oil and natural gas, agricultural goods such as wheat and coffee, and industrial materials such as copper, iron ore and lithium.

For Australian investors, commodities are especially relevant because Australia is a major exporter of resources and agricultural products. Movements in commodity prices can affect mining shares, the Australian dollar, inflation, interest rates and the broader economy. Even if you never buy gold, oil or copper directly, commodity markets may still influence your superannuation, share portfolio and cost of living.

Why Investors Look at Commodities

Commodities can play several roles in an investment portfolio. Some investors use them for diversification, because commodity prices may not always move in the same direction as shares or bonds. Others see commodities as a potential hedge against inflation, especially when rising energy, food or raw material prices are pushing up costs across the economy.

Gold is often treated differently from many other commodities. It does not produce income, but it has long been viewed as a store of value during periods of uncertainty, currency weakness or market stress. Industrial commodities such as copper, iron ore and lithium are more closely tied to economic growth, infrastructure spending and demand from sectors such as construction, manufacturing, batteries and renewable energy.

Common Types of Commodities

• Precious metals: Gold, silver, platinum and palladium. These are often used for jewellery, industrial purposes and investment exposure.
• Energy commodities: Oil, natural gas, coal and uranium. These can be highly sensitive to geopolitics, supply disruptions and changes in global demand.
• Industrial metals: Copper, aluminium, nickel, zinc, iron ore and lithium. These are closely linked to construction, manufacturing, electrification and technology.
• Agricultural commodities: Wheat, corn, soybeans, coffee, sugar, cotton and livestock. These are affected by weather, crop yields, disease, trade restrictions and global consumption patterns.

Ways Australians Can Invest in Commodities

Most everyday investors do not buy barrels of oil, tonnes of wheat or copper ingots directly. Instead, they usually gain exposure through listed products, shares or managed investment structures.

• Commodity ETFs: Exchange traded funds can provide exposure to commodities such as gold, silver, oil or broader commodity baskets. Some hold physical assets, while others use futures contracts or invest in commodity-related companies.
• Resource shares: Australians can invest in ASX-listed mining, energy and agriculture companies. These shares may benefit from rising commodity prices, but they also carry company-specific risks.
• Managed funds: Some managed funds include commodities, natural resources or infrastructure exposure as part of a broader strategy.
• Futures and derivatives: More experienced traders may use futures, options or contracts for difference. These can be complex and risky, especially when leverage is involved.
• Physical commodities: Some investors buy physical gold or silver bullion. This introduces storage, insurance, authenticity and liquidity considerations.

ASIC Moneysmart provides a useful introduction to exchange traded funds, while ASX provides investor education on ETFs and how they trade on the market.

Commodity ETFs

Commodity ETFs can be a practical way for Australian investors to access commodities without handling the physical asset. For example, a gold ETF may aim to track the price of gold, while a broader commodity ETF may provide exposure to a basket of resources or futures contracts.

It is important to understand what an ETF actually owns. Some commodity ETFs are backed by physical metal, such as gold or silver. Others use futures contracts, which can behave differently from the spot price of the commodity. Futures-based funds may be affected by contract rollover costs, market structure and short-term price movements.

Before investing, check the product disclosure statement, management fees, currency exposure, liquidity, tracking method and whether the fund is hedged or unhedged against currency movements.

You can explore examples of commodity ETFs through Australian providers such as Global X ETFs Australia and educational material from Betashares.

Resource Shares Versus Direct Commodity Exposure

Buying shares in a mining or energy company is not the same as buying the commodity itself. A gold miner may benefit when the gold price rises, but its share price can also be affected by operating costs, debt, management decisions, mine approvals, production problems, environmental issues and broader sharemarket sentiment.

This can make resource shares more volatile than the underlying commodity. They may offer stronger upside in good conditions, but they can also fall sharply if company results disappoint. For this reason, investors should be careful about assuming that a mining share will move neatly in line with the price of the commodity it produces.

Gold as a Defensive Commodity

Gold is one of the most widely discussed commodities because it is used by some investors as a defensive asset. It does not pay interest or dividends, so its value depends largely on market demand, inflation expectations, real interest rates, currency movements and investor sentiment.

Australians can access gold in several ways, including physical bullion, gold ETFs, gold mining shares and gold-focused managed funds. Each approach has different risks. Physical gold requires secure storage, gold ETFs may charge management fees, and gold miners carry business and operational risks.

Oil, Gas and Energy Commodities

Energy commodities can be very volatile. Oil and gas prices can move quickly in response to geopolitical tensions, OPEC production decisions, shipping disruptions, seasonal demand and changes in global economic activity. These price movements can affect petrol prices, business costs and inflation in Australia.

Australian investors can gain energy exposure through ASX-listed energy companies, global energy ETFs, futures-based products or broader resources funds. However, energy markets are complex. Short-term trading in oil or gas products is generally more suitable for experienced investors who understand leverage, futures pricing and the risk of rapid price changes.

Industrial Metals and the Australian Economy

Industrial metals such as iron ore, copper, nickel and lithium are closely tied to global growth. Australia has significant exposure to these markets because of its resources sector. Iron ore has historically been one of Australia's most important exports, while lithium and other battery materials have become more prominent due to electric vehicles and energy storage.

Prices for industrial metals can rise when demand is strong and supply is limited. They can also fall when construction slows, manufacturing weakens or large new supply enters the market. This cyclicality is one reason commodity investing can be rewarding at times, but uncomfortable when cycles turn.

Agricultural Commodities

Agricultural commodities include grains, livestock, cotton, sugar and coffee. These markets are influenced by weather, droughts, floods, crop disease, transport costs, export restrictions and changing consumer demand. For Australians, agricultural commodity prices can affect food prices, rural businesses and listed agribusiness companies.

Direct exposure to agricultural commodities is less common for beginner investors, but some broader commodity funds or global agriculture ETFs may include this type of exposure. As always, it is important to check what the fund actually holds before investing.

Commodities, Inflation and the Cost of Living

Commodities are closely connected to inflation because they sit near the start of many supply chains. Higher oil prices can increase transport costs. Higher gas and electricity costs can affect manufacturing. Higher wheat, sugar or meat prices can flow through to supermarket shelves.

This is one reason commodities are sometimes described as an inflation hedge. However, the relationship is not perfect. Commodity prices can be volatile, and a commodity investment may fall even when general inflation remains high. Investors should avoid treating commodities as a guaranteed protection against every inflationary environment.

The Australian Dollar and Commodity Prices

The Australian dollar is often influenced by commodity prices because Australia exports large quantities of resources and agricultural products. When demand for Australian exports is strong, this can increase demand for Australian dollars. When global growth weakens or commodity prices fall, the Australian dollar may come under pressure.

This matters for investors because many commodities are priced globally in US dollars. If an Australian investor buys an unhedged commodity ETF, returns may be affected by both the commodity price and the AUD/USD exchange rate. A rise in the commodity price can be partly offset by a stronger Australian dollar, while a weaker Australian dollar can sometimes magnify gains from overseas-priced assets.

The Reserve Bank of Australia provides helpful explainers on drivers of the Australian dollar exchange rate and exchange rates and the Australian economy.

Main Risks of Commodity Investing

• Price volatility: Commodity prices can move sharply because of supply shocks, weather, conflict, policy changes and changes in demand.
• No income: Physical commodities such as gold do not pay dividends, rent or interest.
• Currency risk: Many commodities are priced in US dollars, so Australian investors may be affected by exchange rate movements.
• Product complexity: Some ETFs and trading products use futures, derivatives or leverage, which can make returns harder to understand.
• Company risk: Resource shares are affected by business performance as well as commodity prices.
• Storage and insurance: Physical bullion may require secure storage and insurance.
• Regulatory and environmental risk: Mining and energy companies can be affected by approvals, taxes, climate policy and environmental obligations.

Investing Versus Trading

Investing and trading are not the same thing. An investor may hold a commodity ETF or resource fund as part of a diversified long-term portfolio. A trader may try to profit from short-term price movements in gold, oil, copper or agricultural contracts.

Trading commodities can be risky because prices can move quickly and some products use leverage. Leverage magnifies gains, but it also magnifies losses. Beginners should be especially careful with contracts for difference, futures and other derivative products, as losses can occur quickly if the market moves against them.

For most novices, it may be safer to begin by learning how commodities behave, how ETFs work and how commodity exposure fits into a broader portfolio before considering any form of short-term trading.

How Commodities May Fit Into a Portfolio

Commodities are usually considered a satellite holding rather than the core of a beginner portfolio. A typical long-term investor might first focus on cash, diversified shares, bonds, property or managed funds, then consider whether a small allocation to commodities adds useful diversification.

The right allocation depends on your goals, time frame and risk tolerance. Someone concerned about inflation or currency weakness may be interested in gold or broad commodity exposure. Someone already heavily invested in Australian mining shares may decide they already have enough commodity exposure through the sharemarket.

As with any investment category, the key is to understand what you own and why you own it. Commodities can be useful, but they can also be unpredictable. They deserve a place in the conversation, not a blind leap into the nearest shiny thing.

Watch: Gold, Oil and Commodities Explained

This video provides a beginner-friendly overview of gold, oil and commodities as investments, including why investors consider them and what risks to keep in mind:

Related Resources

• Exchange traded funds - Moneysmart
  ASIC's beginner-friendly guide to ETFs, including how they work, how they trade and what risks to consider.
• ETFs Course - ASX
  A useful Australian course for understanding exchange traded funds, including how they can be used within an investment portfolio.
• Commodity ETFs - Global X Australia
  Examples of Australian-listed commodity funds covering areas such as gold, silver and other resource-related exposures.
• Investing in commodity ETFs - Betashares
  Educational articles explaining commodity ETFs, how they work and what investors should consider before buying.
• Drivers of the Australian Dollar Exchange Rate - Reserve Bank of Australia
  A clear explanation of how trade, interest rates, commodity prices and global conditions can influence the Australian dollar.
• Exchange Rates and the Australian Economy - Reserve Bank of Australia
  A helpful overview of how exchange rates affect trade, prices, investment and the wider Australian economy.
• How to trade or invest in gold - IG Australia
  A practical overview of different ways to gain exposure to gold, including physical gold, ETFs, shares and trading products.

Important Note

This page provides general information only. It does not take into account your personal objectives, financial situation or needs. Commodity investing and trading can involve significant risk, particularly when using leveraged products or derivatives. Before making investment decisions, consider whether the information is appropriate for your circumstances and seek licensed financial advice if needed.