How to Invest in Commodities in Canada [2024]

Summary: As they usually do not derive their value from the stock market, commodities are a terrific investment option for those looking to diversify their portfolio, create a hedge against inflation, and increase their chances of long-term profit and growth. To purchase bonds conveniently, investors can make an account at an online broker like Interactive Brokers.

Best Platform for Worldwide Stock Trading & Investing

Highly trusted multi-asset broker with clients in over 200 countries
Trade on 150 markets globally from a single platform (stocks, ETFs, futures, currencies, crypto & more)
Low commissions starting at $0 with no platform fees or account minimums
Easily fund your account and trade assets in 26 currencies
IBKR pays up to 4.58% interest on cash balances of $10k or more

Up to 4.58% interest on balance*

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What are commodities?

Commodities

A commodity is an essential good or material used in commerce and manufacturing of other goods or materials. Since they are often inputs in the manufacturing process, they are most often associated with raw materials, and they’re interchangeable with goods of the same kind.

However, commodities encompass a wide range of assets, including agricultural goods like coffee, cocoa, and rice, energy sources like oil and natural gas, precious metals like gold and silver, livestock, etc.

Investing in commodities is a rather popular portfolio diversification method because commodity prices do not depend on things like the stock market. What’s more, they’re usually a readily available asset, and they cover such a wide range of products that investing in them allows investors to have a stake in pretty much every industry.

What determines the price of commodities?

In short, commodity prices depend on supply and demand, which are in turn dictated by a number of factors that may or may not depend on the specific commodity in question.

Crops, for example, depend on weather conditions, so the quality of the year and the yield are going to contribute to the price a lot. With livestock, it’s mostly profitability and consumption. That is, there is always the question of whether increasing the price will lower consumption or whether lowering the price might actually increase consumption by too much.

Some factors that apply to most commodities include geopolitical events, politics, and regulatory developments on the market. Moreover, since commodity prices are often quoted in USD, currency fluctuations can easily affect prices.

How to invest in Commodities in Canada: Step-by-step

To start investing in commodities in Canada, you can take the following steps:

Step 1: Choose a broker

Before you can invest in commodities, you’ll need to find a good broker that can give you access to them. There are many brokers nowadays, so you’ll have to do some research before you can find one that suits your investment strategy.

For starters, consider factors such as:

Reputation: Liecenses issued Financial Conduct Authority (FCA), National Futures Association (NFA), Financial Industry Regulatory Authority (FINRA), and similar institutions are obligatory, and so are positive user reviews.;

Fees and commissions: Try finding brokers that offer commission-free trading and low fees;

Customer support: Helpful customer support is terrific for new investors, especially if they have no role models or more experienced investors to help them;
Safety: Since your capital is at risk, you should only search for brokers that take security and logging policies seriously.

Where to buy commodities in Canada

Our recommended commodities broker is Interactive Brokers (IB), a regulated online exchange with over 2 million registered users trading various assets daily. IB is regulated by The US Securities and Exchange Commission (SEC), National Futures Association (NFA), and Commodity Futures Trading Commission (CFTC) and offers:

Commission-free trading and no mark-ups;
4.58% interest on cash balances of $10k or more;
Support 200+ countries;
Trading with other IB users;
No minimum deposits;
Lowest financing rates for margin accounts.

Best Platform for Worldwide Stock Trading & Investing

Highly trusted multi-asset broker with clients in over 200 countries
Trade on 150 markets globally from a single platform (stocks, ETFs, futures, currencies, crypto & more)
Low commissions starting at $0 with no platform fees or account minimums
Easily fund your account and trade assets in 26 currencies
IBKR pays up to 4.58% interest on cash balances of $10k or more

Up to 4.58% interest on balance*

Get Started

Step 2: Create an account and deposit funds

When you find a good broker, you’ll have to register an account. Then, you can decide how much you want to invest and start adding funds to your investing account. You can usually do that by linking your bank account to your broker account, but you can link your broker account to a third-party payment method, like PayPal (PYPL) or use Canadian payment services like Interac e-Transfers.

Step 3: Place your trades

Once you’ve got funds in your account, you can start buying commodities. With Interactive Brokers, simply:

Specify the amount you want to buy;

Submit the trade.

Should you invest in commodities in Canada?

Commodities are known to do well during recessions, and Canada’s economic growth is set to slow down in 2024. The reason why commodities are a good investment option in such an economic environment is simple — people are buying more products, and more resources are needed to make those products to meet the high demand.

However, that does not mean commodities are a solution to all financial problems. Before investing in them, you must understand that the biggest role a commodity can play in one’s portfolio is diversification and hedging against inflation, not generating quick profits.

Note

Before investing, familiarize yourself with some of the more common mistakes other investors tend to make.

Pros and cons of investing in commodities in Canada

Pros

Diversification: Commodities have traditionally been known as a great way to diversify one’s portfolio as they are tied to other asset classes;
Good against inflation: Commodities like gold are a popular hedge against inflation because they retain their value when currency value drops;
They’re a broad asset class: There are a huge number of commodities, so investing in them can be a convenient way to get some exposure to various industries.

Cons

Volatility: Even if not dependent on the stock market, commodities are often volatile in their own right, as their prices can plummet due to adverse geopolitical events, climate changes, etc.
No cash flow: Commodities guarantee no free cash flow and, thus, no passive income;
Additional costs: If you invest in something like physical gold, you will have to pay storage, security, and other fees.

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.

FAQs about how to invest in commodities in Canada