Commodity market rates: Speculative factors in focus

3D concept of rolling dice over a table of gold coins to show speculative factors of commodities market rates

Have you ever wondered what makes the prices of commodities like gold and oil rise and fall? The answer lies in a fascinating interplay of speculative factors that create the unpredictable landscape of commodity market rates. These are not directly related to the underlying value of a commodity but can still have a major impact on its price. 

From the psychology of investors to the impact of hedge funds, we’ll take a look at some of the reasons behind the fluctuations in commodity rates:

All the speculative factors for commodity market rates listed in the blog post depicted in iconography

Investor sentiment

Commodities market trading is heavily influenced by the sentiment of investors and traders. Positive news or market optimism can drive speculative buying, pushing prices higher. 

Gold volatility and investor sentiment have a complex relationship. For instance, an increase in the trading volume of gold call options, especially those with strike prices above the current market price (out-of-the-money calls), can indicate bullish sentiments. 

Conversely, negative sentiment can trigger selling and price declines, affecting your gold trading strategy.

Hedge funds and speculators

Large institutional investors, such as hedge funds and commodity trading advisors (CTAs), can have a significant impact on commodity prices’ volatility. Their trading strategies and positions can amplify price movements.

Market liquidity

The level of trading activity and market liquidity can affect price stability. Thinly traded commodities with fewer market participants may experience more significant price swings due to large trades.

Technical analysis

Many traders use technical analysis, which involves studying historical price charts and patterns, to make trading decisions. Technical factors, such as moving averages and support/resistance levels, can influence trading strategies.

Options and futures contracts

The commodities market relies heavily on derivatives such as options. The trading of these financial instruments can impact the spot prices of commodities. The relationship between spot prices and future prices for a commodity can then be described by 2 terms — backwardation and contango. We will explore these terms further in another blog. 

Speculative bubbles

Commodities markets can experience speculative bubbles where prices rise far above their intrinsic values due to excessive buying. These bubbles often burst, leading to sharp price corrections. Commodity options, such as those for oil, gas, metals, etc., are speculative instruments, and investors can lose more money than they invest.

Ultimately, what affects commodity prices can vary. Speculative factors, including investor sentiment, market liquidity, and trading strategies, can amplify or dampen these price movements. Successful commodity traders and investors carefully analyse and navigate these factors to make informed decisions in this ever-evolving market.

On Deriv, you can trade commodities on a variety of trading platforms, each with its own unique advantages — Deriv MT5 and Deriv X for CFDs, and Deriv Trader, Deriv Bot, and SmartTrader for digital options. 

Sign up for a free demo account to start exploring the commodities market. It comes preloaded with 10,000 USD virtual currency so that you can practise trading commodities online risk-free. 


The information contained in this blog article is for educational purposes only and is not intended as financial or investment advice.

Trading conditions, products, and platforms may differ depending on your country of residence.

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