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Commodity - Markets History

Commodities are a very simple investment; if supply is tight, prices usually rise. The Commodity Research Bureau (CRB) index tracks the price of a basket of commodities including metals and grains although it is heavily weighted to energies.

Commodity-based money and commodity markets in a crude early form are believed to have originated in Sumer between 4500 BC and 4000 BC. Sumerians first used clay tokens sealed in a clay vessel, then clay writing tablets to represent the amount-for example, the number of goats, to be delivered. These promises of time and date of delivery resemble futures contract.Early civilizations variously used pigs, rare seashells, or other items as commodity money. Since that time traders have sought ways to simplify and standardize trade contracts.

Gold and silver markets evolved in classical civilizations. At first the precious metals for valued for their beauty and intrinsic worth and were associated with royalty. In time, they were used for trading and were exchanged for other goods and commodities, or for payments of labor. Gold, measured out, then became money. Golds scarcity, unique density and the way it could be easily melted, shaped, and measured made it a natural trading asset.

Beginning in the late 10th century, commodity markets grew as a mechanism for allocating goods, labor, land and capital across Europe. Between the late 11th and the late 13th century, English urbanization, regional specialization, expanded and improved infrastructure, the increased use of coinage and the proliferation of markets and fairs were evidence of commercialization.The spread of markets is illustrated by the 1466 installation of reliable scales in the villages of Sloten and Osdorp so villagers no longer had to travel to Haarlem or Amsterdam to weigh their locally produced cheese and butter.

In 1864, in the United States, wheat, corn, cattle, and pigs were widely traded using standard instruments began trading on the Chicago Board of Trade (CBOT), the worlds oldest futures and options exchange. Other food commodities were added to the Commodity Exchange Act and traded through CBOT in the 1930s and 1940s, expanding the list from grains to include rice, mill feeds, butter, eggs, Irish potatoes and soybeans.Successful commodity markets require broad consensus on product variations to make each commodity acceptable for trading, such as the purity of gold in bullion.[citation needed] Classical civilizations built complex global markets trading gold or silver for spices, cloth, wood and weapons, most of which had standards of quality and timeliness.

Through the 19th century "the exchanges became effective spokesmen for, and innovators of, improvements in transportation, warehousing, and financing, which paved the way to expanded interstate and international trade."

Reputation and clearing became central concerns, and states that could handle them most effectively developed powerful financial centers.

Read More: Commodities Performance