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Shares make you a co-owner of human ingenuity. Bonds pay interest on money you lend to governments and companies. Real estate offers physical shelter and rental income. For decades, a combination of these traditional assets seemed enough to weather almost any storm.
Until inflation strikes.
When the prices of energy, food and industrial raw materials rise sharply, whether because of geopolitical conflict, supply-chain problems or loose fiscal policy, shares and bonds can fall at the same time. Higher costs squeeze corporate margins, while central banks raise interest rates to cool the economy, pushing down the value of existing bonds.
That is where the oldest asset class in the world comes in: commodities. From barrels of crude oil and tonnes of copper to grain and gold bars, raw materials are the physical building blocks of the economy, and they can play a role as a counterweight in a portfolio.
Why “paper” assets alone are not always enough
During the years of low inflation, a simple rule held for a long time: when shares fell, bonds rose and cushioned the blow. In a world of rewired supply chains, resource nationalism and high public debt, that relationship no longer always holds.
Commodities behave differently from financial securities for three reasons:
- A direct link with inflation: shares and bonds are claims on future cash flows, which lose purchasing power as inflation rises. Commodities are themselves part of what inflation measures. Long-term research shows that commodities have often done better than shares and bonds in periods of high inflation.
- A different rhythm from the stock market: commodity prices are driven mainly by physical supply and demand, such as mine output, agreements between oil-producing countries and the weather during harvest. As a result, they have historically often moved independently of shares and bonds.
- Sensitive to geopolitics: conflicts, tariffs or disrupted shipping routes can push up the price of scarce raw materials and gold while financial markets are under pressure. That is not a law: commodities can also fall sharply in a crisis, for example when demand collapses.
Four types of commodities
“Commodities” are not a single, uniform category. There are four main groups, each with its own role:
1. Precious metals (gold and silver)
Gold has long been seen as protection against currency debasement, debt crises and geopolitical turmoil, and largely moves independently of the day-to-day economic cycle. Since 2022, central banks have been buying markedly more gold than in the years before. Silver is a hybrid: partly a monetary metal, partly an industrial raw material. More than half of silver demand comes from industry, with solar panels and electronics as important growth areas.
2. Industrial metals (copper, aluminium, lithium)
The digital economy and the energy transition have a large physical footprint. AI data centres, stronger power grids and electric vehicles require large amounts of copper, aluminium and battery metals. Because it often takes more than ten years to bring a new copper mine from discovery to production, many analysts expect supply to struggle to keep up with growing demand.
3. Energy (oil, natural gas, uranium)
Energy remains the engine of transport, industry and heating. Tensions in major producing regions quickly feed through into energy prices, and through those prices into the wider economy. An energy position can absorb part of those price rises.
4. Agriculture (wheat, maize, soybeans, coffee, cocoa)
A growing world population and more erratic weather put pressure on food supplies. Agricultural prices follow biological and climatic cycles rather than corporate earnings, which can add further diversification.
How investors gain access to commodities
Investing in commodities does not mean storing copper cathodes in a warehouse or trading futures yourself. Exchange-traded products make them widely accessible. The three main forms:
| Form | How it works | Typical role | Pros and cons |
|---|---|---|---|
| Physically backed precious metals (ETCs) | Exchange-traded products backed by physical gold or silver held in a vault. | Long-term wealth preservation, buffer in a crisis. | Tracks the metal price directly, with no roll costs. Pays no interest or dividend. |
| Broad commodity funds | Track a basket of energy, metals and agriculture through futures contracts. | Broad commodity exposure in a single product. | Diversification across all sectors and automatic rebalancing. Sensitive to the cost of rolling contracts. |
| Shares of producers | Shares of mining, energy and agribusiness companies. | Commodity exposure with possible dividends. | Profits can rise faster than the commodity price. Remains exposed to stock-market crashes and to the quality of management. |
The small print: volatility and roll yield
Commodities can stabilise a portfolio in certain conditions, but they have characteristics every investor should be aware of:
- Commodities do not grow by themselves: a company innovates, reinvests its profits and pays dividends. A gold bar or a barrel of oil does nothing: its return depends entirely on price movements and the cycle of supply and demand.
- Watch out for contango in futures: a fund cannot store millions of barrels of oil or tonnes of wheat, so it invests in futures contracts. Before a contract expires, the fund must sell it and buy the next one. If later contracts are more expensive than the current price (contango), each roll costs return. Some indices therefore spread their contracts across longer maturities to limit that effect.
- Large swings: individual commodities go through pronounced boom-and-bust cycles. Many managers therefore use commodities as a complement in a portfolio, not as its core.
How we see it
At Vermeeren & Van Haute, commodities are one of the six domains in which we invest for our own account, as a counterweight to the other parts of the portfolio. Each domain has its own role: Class A funds provide a broad core, international real estate tangible value and geographic diversification, and automated trading a disciplined, rules-based approach. Commodities complement these for periods when inflation rises or physical supply chains come under pressure.
This article contains general information and is not investment advice, an offer or a recommendation. Investing in commodities involves considerable risk, including large price swings; you may lose (part of) your investment. Past returns are no guarantee of future results.