From the studio

Video: Investors Club | Meta compute, AI rotation, US inflation, and yen weakness (8 mins)
Video: Market Playbook | James Cheo on China tech positioning (6 mins)

Thought of the day

Commodity prices have fallen over the past two months, with optimism for an imminent US-Iran agreement driving oil prices lower and hawkish Fed rhetoric keeping gold under pressure. Brent crude oil has fallen over 35% from its mid-May high, while gold remains 22.5% below its peak in January.

But we believe current oil prices overestimate how quickly traffic through the Strait of Hormuz will return to pre-war levels and shut-in production will recover, and we expect gold to top USD 5,000/oz over the next 12 months. Additionally, El Niño-related risks may support agricultural commodities, while the AI boom and electrification remain positives for industrial metals.

Equally important, in our view, are the roles broad commodity exposure can play in a portfolio context.

Diversification. The relationship between stocks and bonds has varied over time. Bonds offered strong diversification benefits with a negative average rolling correlation versus the S&P 500 between 2000 and 2019, but the correlation has spent more time in positive territory since 2020. Commodities, meanwhile, have historically exhibited low correlations with equities and bonds, particularly when stock-bond correlations are elevated and over longer investment horizons. This means an allocation to commodities may offer a differentiated source of return in portfolios.

Inflation hedging. High and unexpected inflation is one of the most harmful risks for portfolios because it usually results in negative returns for both stocks and bonds. Commodities can help hedge inflation largely because they are directly embedded in inflation measures. Energy and food, for example, typically represent around 20% of US consumer price indices. Research shows that commodity returns are positively correlated with inflation, have provided effective long-run inflation protection, and have been particularly sensitive to unexpected inflation.

Downside protection. Improved diversification can reduce overall portfolio volatility and enhance risk-adjusted returns, but it does not necessarily prevent drawdowns, especially when asset returns are not independent or normally distributed. Comparing historical drawdowns shows that a 10% addition of commodities often reduced losses in periods when stocks and bonds were positively correlated. While broad commodities have not consistently lowered volatility during severe market stress, gold stands out as having more consistent defensive properties. This reflects the cyclical nature of sectors such as energy and industrial metals, which are more economically sensitive and often decline in risk-off environments.

So, while investing in commodities carries specific risks such as shifting supply-demand dynamics, geopolitical events, regulatory changes, and operational disruptions, we think the case for broad commodity exposure is strong. We also favor an active approach, as individual commodities can offer return-enhancement opportunities when there is a clear view on spot price appreciation.

Optimal commodities allocations depend on investor objectives, risk tolerance, and market conditions, although historical analysis and contextual factors suggest that a low- to mid-single-digit allocation may be appropriate for investors willing to accept periods of underperformance to seek additional diversification and inflation sensitivity.

For more details, please read our report Investing in Commodities: From investment rationale to portfolio reality , published on 22 June 2026.