The era of commodities shining is coming, and investors should catch up on this lesson.

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Over the past years, there has been a familiar order in asset allocation.

Stocks are responsible for growth, bonds for buffering. When the market is good, investors chase technology, growth, and valuation expansion; when volatility rises, funds move back into bonds and defensive assets. Commodities have always been present but seldom at the center of portfolios. They are more like price variables in the news: oil prices rise, gold hits new highs, copper gets used to explain economic cycles. There’s often excitement, but their position isn’t high.

This position has started to shift recently. The issue isn’t that a particular asset class has suddenly become more attractive, but that the traditional layer of protection is no longer as stable. Inflation persists in certain periods, growth begins to weaken, and bonds fail to buffer stocks more often than before. Equities and bonds coming under pressure together is now more than just a textbook scenario.

Goldman Sachs’ “Commodity Primer for Portfolio Managers,” published May 11, discusses this very change: Why, when high inflation and weak growth appear together, commodities have returned to the portfolio conversation.

Goldman Sachs data shows that the annualized volatility of commodities (measured by BCOM) is about 15%, higher than U.S. fixed income (about 8%) but lower than U.S. equities (about 19%). The defining feature: they tend to strengthen when both equities and bonds are under pressure.

Historical data shows that in every 12-month period when both equities and bonds posted negative real returns, at least one among commodities or gold posted positive real returns. This means a small commodity allocation may not increase overall portfolio risk, and may in fact act as a shock absorber when the traditional “60/40” stock-bond mix fails.

The historical conclusion is straightforward: Commodity volatility isn’t low, but the periods when they strengthen most clearly are usually those when both stocks and bonds are under strain; a small commodity allocation doesn’t necessarily make the portfolio riskier, but may actually reduce overall volatility.

Three Types of Inflation, Three Hedging Tools—Lumping Them Together is the Costliest Mistake

What’s interesting about this report is that it doesn’t present “inflation hedging” as a vague slogan. Late-cycle overheating, supply disruptions, and damaged policy credibility can all superficially drive inflation, but from an asset perspective, they are different matters entirely.

When the economy overheats and demand keeps depleting inventories, commodities like oil and industrial metals—which are more cyclical—often respond more; supply shocks are sudden and hard to predict, so a diversified commodity basket is more reliable; once the market begins to doubt not just prices but the credibility of policy and institutions, gold’s role moves to the forefront.

Historically, markets have grouped gold, oil, copper, and resource stocks together as “inflation hedges.”

But when allocating, this merging often leads to mistakes. If you fear overheating but hold gold, your protection may be mismatched; if you fear another supply chain problem and only bet on one product, a future supply shock elsewhere will dilute results.

The renewed focus on commodities is not because “everything will rise.”

The practical reality: the market needs a set of tools for different problems, not a broad, one-size-fits-all label.

Inventories: The Inescapable Iron Law of the Commodity Market

A recurring theme in the Goldman report is inventory. Commodity prices can reflect the future, but unlike equities, their “imagination space” is limited, because commodities must be stored, transported, warehoused, and financed.

When inventories are tight, current supplies are more valuable; when inventories are loose, it’s less urgent to deliver immediately.

The report emphasizes the price spread between near and distant contracts. When near-term prices trade persistently above distant-term, it usually means spot is genuinely tight; when distant-term prices are higher, it’s often because inventories are ample and storage costs are built into prices.

The commodity market loves stories, but ultimately, everything comes back to “is there product available?” Even among commodities, temperament varies greatly because of this.

Natural gas and electricity experience more volatility because they’re harder to store, creating a thin buffer; even slight shifts in supply/demand can trigger big price swings. Metals, by contrast, store more easily, supply ramps up slower, and prices can reflect more forward expectation.

Resource Stocks ≠ Commodities: Similar Appearance, Different Risk Structure

Copper is often called “Dr. Copper” not because it’s magical, but because it reflects future growth earlier than most other commodities. Energy and agriculture relate more to immediate reality; metals look further out. This also explains why resource stocks can’t really substitute for commodities.

A common market move: bullish on oil, buy oil & gas stocks; bullish on copper, buy mining stocks—seeking both commodity elasticity and equity upside.

Goldman Sachs is cautious about this logic.

The report notes that resource stocks still have about 0.55 correlation to broad equities. In late-cycle stages, commodity prices may keep rising due to depleted inventories, but resource stocks must also deal with slowdowns in growth, changes in interest rates, financing conditions, management decisions, and operating constraints.

During supply shocks, this is even clearer: higher commodity prices don’t guarantee companies will convert that into profit; capacity, transport, costs, and balance sheets may all absorb those gains.

So, resource stocks are certainly playable, but their risk structure is different.

They are first equities, then resources. If you want commodity protection, but end up with equity-like assets with commodity traits, they may look similar but behave differently. Goldman singles out “commodity-linked equities are no substitute for commodities” as a key point.

When it comes to practical allocation, Goldman’s approach is pragmatic.

For most investors, start with a broad commodity index rather than betting on a single product from the outset.

The report compares S&P GSCI and BCOM: the former is more energy-heavy, acting as a directional energy tool; the latter spreads weights more evenly across energy, metals, and agriculture, making it typically more stable.

Building a Commodity Basket: Benchmark Choice and Regional Differences Matter

The report also notes BCOM is the broader benchmark of choice for investors.

For those adding a buffer to their portfolio, this difference is material: are you allocating to commodities, or overweighting oil? These are entirely different risk exposures. Commodities are also highly regional.

Goldman points out that U.S. benchmarks may not hedge European or Asian energy inflation effectively.

Natural gas is a regional market; European investors should watch TTF, Asian investors should track JKM. Focusing on U.S. contracts often misses the real price shocks you face.

Commodity indices seem global, but when placed in portfolios, you must answer: where am I hedging inflation, energy price, or supply disruption?

Roll Yield: Getting the Direction Right Doesn’t Always Lead to Profit

How you realize returns also changes outcomes. Commodity investing isn’t just about being directionally correct, but also which tool you use and where you are on the futures curve.

The report spends time on roll yield for this reason. When inventories are ample, near-term futures lose value due to storage costs; when inventories are tight, holding near-term contracts works better.

2024 is a textbook case: Brent crude spot started 2024 at ~$75.89/barrel and ended at ~$75.93—barely moved—but investors earned double-digit returns from roll yield alone.

When inventories are tight and the futures curve inverts, near-term contracts appreciate naturally with time; when the curve is upward sloping and inventories are ample, storage costs erode short-term holdings.

Thus, most index investors use “enhanced roll strategies”: investing at the front end to capture roll yield in backwardated markets, and moving along the curve to reduce losses in contango. Getting the direction right is only half of commodity investing; tool choice and curve position turn judgment into returns.

Fragmented Supply Chains: Why Commodity Positioning in Portfolios Will Keep Advancing

Put these clues together, and the present commodity cycle becomes clear.

This isn’t a uniform bull market, nor a sentiment-driven short-term spike. What fits current conditions best is an asset class long marginalized is being re-centered as the traditional stock-bond buffer thins.

Goldman also notes that supply disruption risks rise as global integration weakens: more tariffs, subsidies, and inventory security mean supply chains turn inward, and lower prices force out high-cost producers, which leaves supply more concentrated and price volatility more pronounced. In such a world, commodities’ position in portfolios naturally advances.

What Investors Should Watch Next

Goldman sees three main types of assets worth reevaluating.

Gold is best watched in environments where policy and institutional credibility is in question; broad commodity baskets for unpredictable supply shocks; oil and industrial metals as tactical tools for betting on the economic cycle. Resource equities can capture sentiment and elasticity from price rises, but are more like an equity position, less of a core hedge in this cycle.

What matters most isn’t which product rose a few points today. Whether the next wave of inflation is driven by demand, supply, or worries about policy and institutions will directly decide which commodities take the lead. Inventories and the near-far contract spread require ongoing attention—the curve is more honest than the news.

Further ahead, watch whether stock-bond correlation weakens, and if bonds can still buffer equity risk.

Also, keep an eye on supply concentration, particularly in energy, metals, and key processing stages. If supply continues concentrating in fewer regions or links, commodities will keep moving up in portfolio importance.

The hardest part of this lesson is never guessing which commodity rises next, but recognizing when a portfolio could lose its traditional protection overnight. Those moments have already occurred in recent years, and may become more common. Commodities moving to center stage means a lot of previous hesitation in allocation is starting to disappear.

Risk DisclaimerThe market has risks; investment requires caution. This article does not constitute individual investment advice, nor does it consider users’ specific targets, financial situations, or needs. Users should consider whether the opinions, perspectives, or conclusions in this article suit their unique circumstances. Invest accordingly and at your own risk. ```