Volatility in commodities has risen since the start of the Iran conflict.
- The price of Brent crude was trading around USD 72/bbl ahead of the strikes on Iran; at the time of w riting on 13 April, the price stands at USD 102/bbl.
- Gold prices are currently just under 13% below their all-time closing high in January, with higher rate expectations since the escalation of tensions weighing on sentiment.
- Broad commodities have gained around 17% year to date, based on the UBS CMCI Composite total returns index in US dollars.
The geopolitical risk premium should fade, but fundamentals look supportive.
- Oil product inventories are running low in various economies and could necessitate even higher prices to ration demand before stocks are refilled.
- Over the medium term, we would still expect gold to rally substantially if geopolitical uncertainty remains high while interest rate expectations come down.
- We project further supply shortages for copper and aluminum, which should support prices over the medium term, while structural drivers (e.g., electrification) underpin long-term demand.
We continue to favor commodities, with a focus on active management.
- Commodities can face periods of volatility, but they can also play a valuable role in portfolios, as they have historically shown low correlation with equities and bonds.
- Investors can access commodities through diversified indices, exchange-traded funds (ETFs), exchange-traded commodities (ETCs), or structured investments.
- However, they should be aware of unique risks such as price swings and costs associated with futures or physical holdings.
New this week
Brent and Nymex crude oil futures rose around 7% on 13 April, after weekend US-Iran talks in Pakistan failed to produce a deal to end the war, with the US threatening to enact a blockade on ships that visit Iranian ports.
Did you know?
- Returns can be strong when supply-demand imbalances or macro risks, such as inflation or geopolitical events, are elevated. In such periods, broad commodity exposure can help diversify portfolios and protect against shocks.
- For investors with an affinity for gold, we believe a modest allocation can enhance diversification and buffer against systemic risks.
- For investors with substantial allocations and significant unrealized profits in gold, broadening commodity exposure to include copper, aluminum, and agricultural assets can help diversify sources of future return, in our view.
Investment view
Commodities will continue to play a more prominent role in portfolios in 2026, in our view, offering diversification amid supply-demand imbalances, geopolitical risks, and the global energy transition. We like broad commodity exposure and continue to favor gold, which we see as an effective hedge.
