Volatility in Commodity Prices

As a novice investor, I found your coverage on commodity stocks highly interesting and informative. I understand that commodities, at various times, have exhibited significant price volatility. Could you explain what drives these changes?
 - Saurabh Upasani

Editor Responds: Thank you for writing to us. Simply put, supply and demand dynamics are the main reason commodity prices change. When there’s a big harvest of a certain crop, its price usually goes down while drought conditions can make prices rise from fears that future supplies will be smaller than expected. Similarly, when the weather is cold, demand for natural gas for heating purposes often makes prices rise while a warm spell during the winter months can depress prices. Some commodities show more stability than others, such as gold, which even serves as a reserve asset for central banks to buffer against volatility. To conclude, the supply and demand characteristics change frequently; volatility in commodities tends to be higher than for stocks, bonds and other types of assets. We hope this clears your doubts. Do keep writing to us with your queries.