The financial market is mostly driven by market sentiment. The market sentiment justifies the volatility in the stock and commodities prices. To check up the market sentiment, the investors and traders rely on the market and economic indicators. With the launch of these market indicators, the market tends to show certain volatility with the launch of information. Not just the market sentiment, but the flow of economy can be judged on the basis of the market indicators. That’s why, many policymakers, economists, and research analysts always keep market indicators in their arsenals.
Common Market Indicators for Commodity Investing
Every market has its own set of indicators, the same goes for the commodity market where these indicators can help investors decipher the information and make smart investment choices while investing in the commodity market.
Here, we’re going to discuss the market indicators that can help investors with commodities investing. But, before we proceed, it is important for an investor to understand that the data comes from the release of market indicators is raw, only useful if the investor can put it into context to make smart decisions regarding investing and asset allocation. Similar to the equity market, the commodity market is also exposed to huge risk and if you’re already invested in it – it is important to know where the market is heading. And one way to do that is to follow certain market indicators that can help in commodities investing.
Gross Domestic Product (GDP)
Commodities prices are highly influenced by the demand & supply. The indicator that measures all the goods and services produced within a country by private, government, business sector, and imports & exports is a gross domestic product (GDP). It is one of the key economic indicators that help in understanding the overall economic growth. GDP per capita measures the purchasing power on an individual level. It gives a good indication of demand and volatility in commodities prices. For this reason, the commodity investors pay a lot of attention to the GDP data and use the economic calendar to decipher information on economic performance through GDP data.
It is completely driven by growth projects. If there is a prediction of a higher GDP, it means soon there will be a higher demand for commodities such as steel, copper, iron, and other base and industrial metals, etc.
EIA Inventory Report
When it comes to investing or trading in energy commodities like crude oil or natural gas, the Energy Information Administration (EIA) inventory reports released by the Department of Energy in the United States plays a major role in getting the weekly energy supply reports i.e. crude oil production, transportation of energy, and refinery utilization data that can help in predict the adequacy and shortfall of energy in states, cities, and countries, etc.
It’s an indicator of measuring future inflation and has a direct impact on the prices of crude oil and other energy products. One who is trading in crude oil or planning to invest in energy commodities must look out for EIA inventory data and monitor them regularly.
Consumer Price Index (CPI)
Consumer Price Index (CPI) is a widely used market or economic indicator used to measure inflation and deflation. CPI also recognized by the cost of living index which measures the prices changes in a basket of goods and services on the consumer level. With this indicator, the commodities investors can get a general idea of how much consumers are spending on goods and services in both rural and urban part of the country. Unlike the Wholesale Price Index, CPI also covers transportation, food, and medical care, etc. In short, one can decipher the information on future inflation and possible change on commodities prices through the CPI data.
Purchasing Managers Index (PMI)
PMI is a quite important indicator when it comes to checking the health of the manufacturing sector. Since the manufacturing sector and commodities have a lot in common, the PMI indicator helps with the commodities investing. It is a monthly data that comes even before GDP and act as a critical decision-making tool for commodities investors. If the data is positive then the manufacturing companies are doing well and the companies are looking forward to spending more on commodities.
Hope, all the mentioned market indicators help you with the commodities investing. Nevertheless, if you have any query or would like to add something then don’t forget to mention in the comment section below.