The stock market and the commodity market are linked in many ways. The rise and the fall of the stock market are based on the earnings of the company, both that has been reported or projected. When there is a slowdown in the business then there is a rise in the cost of production. This leads to falling in the earnings of the company and so the stock price of the company also falls. BTC Profit system.
In most of the cases when you see that there is a rise in the price of the commodities then the corporate earnings are going down. There could be some unusual cases when the stock and the commodity market moves in the same direction when the central bank enters the situation. However, this is not very likely.
The commodities market
The price of commodities is affected by supply and demand. In countries that are developing, there is a need for commodities to manufacture their goods, and this leads to the higher price of commodities. The increase in demand also attracts investors who wish to participate in the strong commodity market. The investors also participate in the commodity market because the commodity markets negatively correlated to the stock market. So investors pull out their money from the stock market and invest in the commodity market.
When the commodity prices are lower than this means that the manufacturers are able to buy the commodities for a cheaper price and this causes their earning so rise and the stock price of the company also follows the same pattern. When the commodity price is high then this causes the manufacturing prices to rise and thus causes a drop in the stock prices. However, most companies in such a situation when the commodity prices are higher outsourced their manufacturing work to those countries where the commodity prices are lower. Also, they look to offshore work where labor is not expensive.
The global economy
When there is a decline in the global economy then the central bank will try to boost the economy of the country by keeping the interest rate low. This reduces the manufacturing cost because it lets the company borrow cheap money in order to fund their operations. The low rate reduces the cost of producing the commodities and this leads to high demand for the commodities and good earnings for the manufacturers. This leads to a rally in the commodity and the stock market when the central bank tries to stimulate the economy through a low rate of interest.
How are commodities and stocks traded?
Commodities are traded in future contracts. These are contracts which let you buy or sell the commodity at a specific time in the future.
Stocks are traded in the cash market. Youcanalsotrade stock futures.
To trade any of the asset class you need to first open an account with a brokerage firm.