Commodities range from precious metals such as gold and silver to food items such as grain and drinking water. The importance of commodities will depend upon the various roles commodities play, as such roles are intertwined with the demand each commodity has in the marketplace. In order to understand such relationships, one would be well advised to explore this interplay based upon the background of assorted economic scenarios.
To start with gold, in an environment of great uncertainty as to the viability of fiat currencies impacted by the status of respective national economies, gold is historically known to be a magnificent store of value much desired at the onset of increasing inflation and possible hyperinflation. Excessive central bank printing of fiat currencies enable governments to inflate away respective countries' national debts. The resultant loss in value of fiat currencies is reflected by a concomitant increase in the value of gold as a safe haven. The price of gold increases both due to the measured fall in value of fiat currencies and the increase in demand for gold by the informed populace desirous of protecting personal wealth.
Silver, on the other hand, is a great store of purchasing power. Usually priced substantially lower than gold, it forms a practical medium of trade, particularly for small transactions dominant in everyday personal living. Furthermore, silver has extensive industrial use in minute quantities especially in electronic products. It is important to note that such small amounts of silver incorporated for instance in computer products are not recoverable as such products become obsolete, so that the above ground availability of silver is being continually depleted while the discovery of new silver deposits in mines is gradually falling in frequency. Hence silver is on a net upward movement in price before even being augmented in value by increased demand for its store of purchasing power.
Moving on to petroleum, the drastically reduced naturally occurring reserves of oil coupled with ever increasing demand will continue to wreak havoc on the price of oil, which is expected to go up as high as $400 per barrel during the worsening of the current financial crisis as fiat currencies are seen to start collapsing. Absolutely a store of value and a must for those inclined to speculate financially in new oil wells, those now being mainly offshore as onshore wells dry up, a lucrative income stream is enjoyed upon striking oil giving one the opportunity to then invest more in other commodities thus securing the value of one's wealth.
Food commodities are of extreme importance as riots in various parts of the world have started to take place, mainly in economically suppressed countries suffering from long dictatorships or adverse weather conditions. The scarcity of food will become increasingly noticed as the world's population grows, fiat currencies lose their final remnants of value, and both food prices and the costs of producing food skyrocket. Such daily needed food substances are a great store of value provided one has the ability to secure storage in sufficiently large quantities in physical form. Food item futures contracts in financial markets will probably grossly outweigh the physical quantity of food items backing the contracts, thus producing even more demand upon the discovery of such discrepancies.
Finally, drinking water can be somewhat difficult to store in abundance, but investing a position in its transportation system may be one option, while another would be purchasing a stake in a spring water. Due to changing weather patterns involving the warming of the globe, water is becoming more scarce and difficult to amass as years go by. Certain parts of the world are suffering major long-term droughts, while large swaths of the earth are devoid of fresh drinking water. Water shortages will form another cause of civil unrest, possibly even more violent than that caused by food shortages. For instance, whereas the Middle East was largely known for its oil reserves, nowadays one comes across the saying that he who controls water controls the Middle East. Largely understood to be Turkey, such control of the region's water is in turn expected to place significant military importance on the so-called water tap of the Middle East.
In closing, a collapse in fiat currencies will no doubt send commodity prices soaring as one rushes to sell one's liquid assets made up of fiat currencies to purchase physical commodities ranging from gold and silver to food items and drinking water. Until a commodity-based currency is established to replace the possible onset of mass bartering in commodities, such investments will doubtless be made for purposes of storing value and harnessing purchasing power.