02 December 2010
A buyer in Jammu, India chooses gold jewelry. Gold is commodity traded worldwide and in futures markets
This is the VOA Special English Economics Report.
Commodities are basic materials that are used and traded worldwide. The price of commodities helps determine how much a business can charge for a product and the profit it can make. Commodity prices have reached a two-year high since falling sharply during the world financial crisis.
Hard commodities are materials like iron ore, oil and gold. Agricultural products are soft commodities. These include wheat, cotton and rice.
Economic measures show the world economy is recovering unevenly. China and India, for example, have reported strong growth in manufacturing. Developed nations have had slower growth.
John James is a business professor at Pace University in New York State. He says demand in developing economies can push up prices for commodities like oil and iron ore used for making steel. But, he says, changing currency values can also influence prices.
JOHN JAMES: “The spike in the price of commodities [is] a reflection of the instability of both the euro and the dollar and the best example of that, of course, is gold.”
Gold prices have reached record levels in recent months. That means gold dealers must pay more for the commodity now than they did only a year ago. That affects current prices.
Not surprisingly, manufacturers want some control over the prices they pay for commodities. Futures contracts are agreements between a buyer and a seller to exchange something at a set price at some time in the future. These contracts let buyers lock in a price for basic materials.
But some traders in futures markets only want to make a profit. They buy or sell contracts depending on the direction they believe prices will go. These speculators get blamed when prices rise, or fall, too quickly.
The United States, Germany and France are looking into ways to limit this kind of trading.
Some experts say exporting commodities is not a good path to long-term economic growth. The United Nations recently reported that the least developed countries must change their economies to provide good incomes for their citizens.
Supachai Panitchpakdi leads the UN development group UNCTAD. He says the least developed countries need to cut dependence on commodities and manufacture products for export. He says only this will let them gain from world trade.
And that’s the VOA Special English Economics Report, written by Mario Ritter. Follow us on Facebook, Twitter, YouTube and iTunes at VOA Learning English. I’m Steve Ember.