I recently got married in Vietnam and, as is traditional in many Asian cultures, several people gave us gold as a wedding gift. My mum mentioned that a friend of hers (one of my many honorary aunties) got in on this tradition extra-early when it came to her daughter. She didn’t wait until her daughter was engaged to buy her gold wedding gifts. Instead, she snapped them up immediately after she was born. As a result, they’d garnered more than two decades of compounded appreciation by the time they were handed over.
When I asked my mum why my auntie locked her gold so promptly, she replied, “Because it only goes up”. In Asian culture, owning gold is viewed almost as a multi-generational savings scheme that happens to be wearable, portable, and exchangeable anywhere on earth. And, as it turns out, it’s outperformed most pension funds pretty handsomely over the last 20 years.
In sterling, gold is up around 30% over the last 12 months, outperforming the S&P 500, the FTSE 100, and probably most investment portfolios. But it’s also just experienced its sharpest monthly drop in at least 15 years, falling from all-time highs of almost $5,500 an ounce in January 2026 to around $4,500 today – a useful reminder, before we go any further, that even gold has bad weeks.
That brings me neatly on to a question lots of people are asking: with precious metal and other commodity prices on a tear, does that mean we’re in a commodities supercycle?
What's a supercycle, and are we in one?
A commodities supercycle is a long period, usually a decade or more, during which the prices of key raw materials are meaningfully above their historical averages because demand has surged to outstrip supply. Some examples from history include the post-war reconstruction boom in the US, and China’s rapid industrialisation in the 2000s.
Today, the commodities story is much more complex. Most importantly, it’s a story driven by three distinct narratives: copper, gold and oil.
The price of copper has hit record highs of above $13,000 per tonne. Despite its recent correction, gold is still up sharply. And the price of oil, which had been drifting lower on weaker Chinese demand, has surged back to more than $100 a barrel in the wake of the conflict in the Middle East. Each of these price spikes is being driven by very idiosyncratic factors, rather than a broad surge in all raw materials. And that really matters because we believe it means there’s a stronger structural case for the long-term appreciation of some commodity prices than others.
When you invest your capital is at risk and you could lose some or all of your investment. Past performance should not be seen as an indicator of future performance.
Copper and the AI boom
Copper is experiencing the closest thing to a genuine supercycle nowadays, mostly driven by something we’re probably all trying to figure out: artificial intelligence (AI). AI workloads are super-energy-intensive. That makes AI data centres much more power-hungry than facilities that keep traditional computing going. The International Energy Agency (IEA) expects data centre electricity demand to more than double by 2030.
Copper is the most efficient, reliable and cost-effective material to transmit all the extra electricity needed. To put things in context, it’s estimated that every single AI data centre will need about three to five times more copper than a traditional facility. Meanwhile, it takes around 15 years to get the average new copper mine up and running after it’s been discovered. Moreover, mining companies have spent the best part of the last decade underinvesting in new supply projects.
The result is a big supply and demand gap that looks like it’s here to stay. Investment bank JPMorgan has forecast that there could be a 330,000 metric tonne copper deficit in 2026, while other banks have estimated that the price of copper could rise to as high as $15,000 per tonne. Even those investors who are most bearish on the shorter-term outlook for copper prices don’t dispute that a shortage is coming – they just disagree on when.
As well as being critical for the build-out of the AI infrastructure, copper is also a key input for electric vehicles, renewable energy and upgrades to the electricity grid. No matter what, we’re going to need more copper.
In our multi-asset funds, the main way we tap into copper’s potential upside is by investing in structured products. These are designed to allow us to participate in that upside as the price of copper rises, while protecting the capital we invest if it falls. The trade-off for this protection is that our gains are capped – if the price of copper hits stratospheric highs, we’ll only capture a pre-defined level of those gains. Copper price-related structured products give us exposure to what we see as a very long-term demand story, while keeping the potential downside risks contained.
And tapping into that demand story can also help us hedge against the inflationary pressures that may be stoked by higher commodity prices. Of course, we can also gain direct exposure to copper price dynamics by investing in the equities of copper-mining companies. We own Freeport-McMoRan, one of the world’s largest listed copper producers with high-quality assets in the US and Indonesia, in several of our higher-risk multi-asset funds.
Gold as a risk management tool
Gold is in a supercycle of a rather different kind. Its price is being driven not by industrial demand but instead by demand from the world’s central banks. These banks, particularly those outside the US and Europe, have been quietly buying up physical gold to reduce their dependence on the US dollar.
After Russia invaded Ukraine in 2022, Western countries froze the reserves that its central bank had held in their countries. That drove countries like China, India and Turkey to decide that it was no longer quite as safe as they’d thought to hold a lot of their savings in US dollar assets (mainly US Treasury bonds). So they started quietly buying gold instead. Central bank demand has been the single largest driver of the gold market for the last three years, and this trend is likely to continue.
But remember, the price of gold has actually fallen sharply over the last few weeks, even as the Iran conflict has kept oil prices elevated. This seems odd – geopolitical shocks are meant to be good for gold. But the gold price had run really hard through January, so investor positioning in the precious metal was stretched. All this likely persuaded investors to take profits in their gold rather than adding to it as oil prices spiked. (My mum’s “it only goes up” view probably needs a risk warning.)
History offers useful reminders about how quickly demand for gold can unravel. Between 1980 and 1982, the gold price fell by more than 50% after then-US Federal Reserve chair Paul Volcker hiked US interest rates above 20% to fight inflation. In real (inflation-adjusted) terms, the dollar price of gold didn’t fully recover from this shock until the mid-2020s, over 40 years later! And between 2012 and 2015, the price of gold fell by 40% as the Eurozone debt crisis faded. Both these sharp sell-offs in gold followed lengthy periods when it felt like gold was enjoying compelling bull runs.
Given the strength of the recent rally in gold, we prefer to view it as primarily a defensive asset rather than a potential growth engine. We have a structured product in our multi-asset funds linked to gold that’s similar to the copper price structured product I mentioned earlier. It offers participation in further upside in the gold price, while protecting our capital if that price falls, in exchange for a capped return. This allows us potentially to benefit from all the various roles that gold can perform in portfolios – principally, its capacity to serve as a diversifier during periods of geopolitical stress and market volatility while managing the downside risks associated with a price pullback. In our lower-risk multi-asset funds, we have a small investment in a gold ETF in addition to the gold structured product.
Oil and the return of the geopolitical risk premium
For most of 2025, the oil price drifted lower on weak Chinese demand. EV adoption has reduced China’s petrol consumption and that’s coincided with expectations of a global supply glut. The popular view seemed to be that oil was in a structural oversupply phase.
Then the conflict in the Middle East escalated and the price of Brent crude surged from around $72 per barrel to nearly $120 at its peak, marking the largest one-month price rise in the past 50 years. The price is currently settling at around $100 per barrel as the fragile ceasefire in outright hostilities remains in place.
Around 20% of the world’s oil supplies usually flow through the Strait of Hormuz. With those supplies severely disrupted, will the oil price stay higher for longer? Even with a partial reopening of the strait, it may get anchored higher than at the start of the year. OPEC+ spare capacity, the oil market’s traditional backstop, is largely held in the Persian Gulf and is effectively trapped behind the conflict zone.
Meanwhile, the conflict has got many countries dependent on Gulf oil asking themselves difficult questions about the future security of their energy supplies. Could some start strategically stockpiling oil like they did in the 1970s?
Sadly, conflicts in the Middle East are nothing new. That’s why our multi-asset funds have always had exposure to the integrated oil majors, such as Shell, Chevron and TotalEnergies, as a natural hedge against this risk and its associated impact on energy prices and growth. We focus on those companies with strong balance sheets that generate strong cashflow and return capital to shareholders through dividends and buybacks.
The bigger picture
What does all this tell us?
Commodity markets just aren’t homogeneous. Instead, they’re very different markets driven by very disparate forces. Copper is all about AI and electrification. Central bank demand and geopolitical risk are gold’s key drivers. And oil increasingly behaves like a barometer of geopolitical risk. As a result, commodity prices don’t move in tandem. The last few weeks have shown that oil can be up at the same time that gold is down.
When you learn about portfolio construction theory, you’re often told that well-diversified investment portfolios should probably include a small allocation to commodities. When you get out in the real world and start building portfolios for a living, it may be tempting to make your allocation via broad-based commodities indices. But what are you actually getting if you go down this route?
There are big differences in the two most common benchmarks that track commodity markets. The S&P GSCI Index is tilted roughly 50% toward energy, so if you buy it today you’re making a big bet on the oil price staying elevated. The Bloomberg Commodity Index (BCOM) is more diversified, capping energy exposure at around 30%, precious metals at 20% and industrial metals at 15%, with the rest split across agriculture and livestock. But buying BCOM could still leave you underweight the two commodities underpinned by the strongest structural demand drivers right now: copper and gold. BCOM also exposes you to the ups and downs of ‘soft’ commodities like wheat and corn, whose prices are primarily driven by weather patterns.
It can be useful to have a tactical allocation to agriculture. We’ve had one in the past when we wanted to hedge against food inflation and supply shocks. But we don’t currently hold agriculture exposure in our funds.
Getting our overall commodity allocation right means being very specific about what we expect each of our individual exposures to do and how we expect them to interact with each other.
As we’ve explained, we’re not calling an all-encompassing commodities supercycle right now. Instead, it looks increasingly likely that we’re experiencing a specific supercycle in copper, a regime shift in the gold market, and a genuine oil shock. They all just happen to be occurring at more or less the same time.
It’s fine to invest in broad-based commodity indices – as long as you are aware of what is actually inside them and what the main drivers are. At the moment, we think today’s market dynamics call for more targeted exposure to specific commodities instead of defaulting to broad-based indices that try to cover everything. We think the latter may risk unintended, highly concentrated bets on commodities with less powerful price appreciation potential.
My aunties will probably remain perma-gold bulls. But their holding periods tend to be a lot longer than the norm!
