Commodities in most cases are always on the fringes of most individual investment portfolios. It is often overshadowed by the booming equity markets, rising property values and attractive yields in fixed income. They were often viewed as niche for institutional investors and traders.
However, as global uncertainty resurfaces majorly caused by things like inflation risks, geopolitical tensions and shifting monetary policy, commodities are seen commanding investor attention.
This renewed interest, market professionals say is attributed to commodities’ offering when it comes to diversification, inflation protection and risk management, especially during periods when the traditional assets face pressure.
According to Ken Gichinga, chief economist at analytics consulting firm Mentoria Economics, commodities tend regain attention whenever confidence in fiat currencies and financial markets weakens.
Fiat currency is money issued by a government that is not backed by a physical asset such as gold. Instead, its value is supported by law, public confidence in the issuing authority and the central bank’s ability to manage supply, inflation and economic stability.
“During periods of high uncertainty, not least when inflation threatens to go up, commodities such as gold provide investors with a buffer, especially against inflation,” Mr Gichinga says.
Mr Gichinga says the logic behind commodities’ appeal lies in history. For decades before the 1970s, the global financial system operated under the gold standard, where currencies were directly linked to gold reserves.
While the world eventually shifted away from that system, the trust associated with gold has endured particularly in moments of instability. That trust is being tested again as inflation expectations shift.
“Last year, inflation was not a problem because a lot of manufacturers did not pass on costs. But this year, there’s an expectation that it might creep up,” he says.
That change in expectations is already influencing the investor behaviour.
“That’s what makes investors who have access to these commodity lines look to diversify. It’s an element of diversification.”
A Global Market Outlook report released in December 2025, warns that the global economy is still vulnerable to inflation shocks, geopolitical disruptions and the uneven growth.
“The global economy is expected to grow below its long-term trend, with inflation risks remaining asymmetrical,” the report notes. In such environments, real assets tend to attract capital.
“Periods of heightened uncertainty typically see increased allocations to real assets, particularly commodities, as investors seek protection against inflation and currency erosion,” the report says.
Not all commodities play the same role. Commodities are not a single, uniform asset class. Mr Gichinga divides them into two broad categories: store-of-value commodities and growth-linked commodities.
“There are commodities like gold that are more of a store of value. They speak more to currency risk,” he says.
Gold’s performance is closely tied to the US dollar and inflation expectations.
“If you expect significant inflation in the US or the dollar to weaken and right now the dollar index is at a one-year low, gold significantly gains,” Mr Gichinga says.
“Gold continues to play a strategic role in portfolios as a hedge against inflation surprises and weakening fiat currencies.” Additionally, Central banks are reinforcing that trend.
“Central banks in emerging and developed markets have maintained elevated levels of gold purchases as part of reserve diversification strategies,” the report says.
Industrial metals and the growth story. The growth-linked commodities tell a different story altogether.
“You you have other commodities, such as the industrial commodities, that speak more to construction and global growth. These are your metals like steel, aluminium,” Mr Gichinga says.
Mr Gichinga says that when interest rates are low and economic confidence is strong, the construction and manufacturing activity increases.
“When investors are constructing, they need steel, they need aluminium. These commodities gain when people are bullish about global prospects.”
For example China, the world’s largest construction market, plays an outsized role in shaping the industrial demand.
“China is the largest player in construction, so industrial metals speak more to growth than store of value,” Gichinga says.
However, that growth trajectory has slowed.
“China had a very bad Covid period. The construction aggressiveness has come down so you may feel industrial metals might not do very well,” he says.
The report also points to structural demand linked to infrastructure spending and energy transition.
“Longer-term demand for industrial metals is supported by infrastructure spending, defence and the energy transition, even as near-term growth remains uneven,” the report says.
Defensive commodities versus growth-linked bets
Despite the persistent global risks, growth expectations have not collapsed.
“The global economy is still expected to grow at 2.2 per cent. Even with all that’s happening in America, there’s still expected buoyancy,” Mr Gichinga says.
On energy markets, the report points to supply-side shifts and geopolitical developments as key drivers of price movements.
Lower energy prices, the report explains, could act as a stimulus for global growth, indirectly supporting demand for industrial commodities.
“Sustained moderation in energy costs would lower input prices for manufacturers and could support a gradual recovery in industrial activity,” it says.
Beyond growth and inflation, Mr Gichinga says geopolitics is changing the commodity demand.
“With America threatening the Nato alliance, European countries will start thinking about investing in their own military,” he says. That has implications for specific minerals.
“Defensive stocks need those minerals. That means more demand for things such as uranium,” he says.
Unlike gold or industrial metals, soft commodities are driven less by macro trends and more by supply disruptions.
“If you look at soft commodities like cocoa, there is a shortage in the world. The big producers are Ivory Coast and Burkina Faso, and they are nationalising production,” Mr Gichinga says.
He adds that the demand is still strong, especially with chocolate where the demand is high but production is constrained.
The report also points out that weather-related disruptions and geopolitical interventions in agricultural markets has continued to create supply imbalances.
“Each commodity has its own narrative. You have to understand who the big supplier is and who the big buyer is.” Mr Gichinga says.
The single biggest driver
For investors, few variables matter more than interest rates. “Interest rates have an inverse proportionality to commodity prices,” Mr Gichinga says.
When rates fall, the liquidity increases.
“When central banks lower interest rates, you have more money in people’s pockets. More money means more demand.” he says.
That demand feeds into the higher commodity prices: “The lower the interest rates, the higher the demand. Interest rates are one of the biggest determinants of commodity prices."
Despite the renewed interest, commodities is still a supporting act in most portfolios.
“Commodities can enhance portfolio resilience during periods of macroeconomic stress, but allocations should be calibrated carefully due to their inherent volatility,” the report says.
Avoiding FOMO
The rising prices often attract inexperienced investors chasing returns. Mr Gichinga says that the most important thing is to have a basic economic understanding.
At a minimum, investors should track two indicators. If nothing else, understand inflation and interest rates.
“Interest rates tell you how much money is in people’s pockets. Lower rates mean more demand. Higher rates mean less money.”
For investors heavily concentrated in bonds, equities or money market funds, commodities can provide balance. Mr Gichinga adds that the number one principle in an uncertain world is always be diversified.
While individual investors face different risks from institutional funds, the principle is grounded.
“It’s easy to say you’ll pack all your money in bonds. But interest rates can go up and mess you up.” Mr Gichinga says.
