Commodities stocks, of course, are in the business of exploring for and producing raw materials. These resources are exceedingly important, indeed utterly indispensable for life and commerce. Even in this young Information Age, our entire physical world is built out of commodities. All physical movement is fueled by commodities. And despite new resource finds getting scarcer, world demand continues to grow relentlessly.
Commodities stocks’ profits are directly driven by commodities prices. The higher these resources’ prices travel, the greater the raw profits and margins for producing these products. And in the stock markets, the larger any company’s long-term profits the higher its stock price will be bid. So as the ironclad links of this causal chain show, it is commodities prices that ultimately drive commodities-stock prices. (more)