Most investors adding “commodity exposure” are really making a concentrated bet on precious metals, a narrower position than they likely realise, and one that responds to only a subset of the conditions that make commodities useful in the first place. For true diversification, commodity investing needs to look beyond precious metals.
Gold is a good start. It should not be the finish line.
Gold responds to a specific set of forces: central bank buying, real interest rate movements (rates adjusted for inflation), safe-haven demand and dollar weakness. Silver largely amplifies gold’s moves, rising more in rallies and falling harder in declines. These are powerful drivers, but they are narrow, working well when fear is running high. But what about the rest of the time?
ETMarkets.comThe commodity quilt chart shows that a different commodity leads almost every year, and precious metals are often not at the top. An allocation that equates “commodities” with gold and silver alone captures only a fraction of what the asset class offers.
Why precious metals alone are not enough
The quilt chart makes the rotation visible. The correlation data shows why it matters for portfolios in the long run.
ETMarkets.comSource: Capitalmind Research. Correlation matrix based on annual returns of global spot prices from FactSet (USD, converted to INR), 2005 to 2025.
Over the last two decades, gold’s correlation with other commodities (a measure of how closely they move together) is low in some cases, and even slightly negative in others. This means when industrial metals are rallying on a global growth upswing, or when energy prices are surging on supply constraints, a gold-and-silver-only portfolio is largely sitting on the sidelines. A commodity allocation should capture more than a corner of the commodity risk-return spectrum.
Different commodities for different economic weather
Unlike stocks and bonds, which largely move as cohorts, different commodities respond to different sets of economic conditions and triggers. Each commodity has distinct uses and its own supply-demand dynamics.
Gold and silver anchor most Indian commodity allocations, typically through ETFs. Gold is primarily a monetary asset. Silver amplifies gold, returning 160% in 2025. Together they cover one macro scenario well: fear, loose policy and currency debasement.
Crude oil, the backbone of global transport, petrochemicals, heating and aviation, is roughly a USD 3 trillion market driven by OPEC+ supply decisions, geopolitical disruptions and the pace of global economic growth. Crude tends to surge during demand booms, for instance returning 54% in INR terms in 2016 as OPEC supply cuts took hold and global demand recovered.
Natural gas, used in power generation, industrial heating, fertiliser production and chemicals, is a roughly USD 1 trillion market. Notably, natural gas is negatively correlated with gold, albeit with much higher volatility.
Copper has a global market of roughly USD 250 billion and is sometimes called “Doctor Copper” for its ability to signal economic health. It is embedded in virtually every growth story of the next decade: electric vehicles, batteries, renewable energy, electrical infrastructure and construction.
Aluminium is the world’s most used non-ferrous metal (a metal other than iron or steel). The global market is roughly USD 180 billion and growing on account of its role in “light-weighting” of electric vehicles.
Zinc is a direct play on infrastructure and construction, primarily used to protect steel from corrosion (galvanisation). The global market is roughly USD 40 billion. Prices track construction cycles, automotive production and mine supply.
Each commodity is driven by a different combination of demand forces, supply constraints, macro conditions and geopolitical triggers. Gold rallies on fear. Crude surges on growth. Base metals rise when the world builds. No single commodity covers all scenarios, which is precisely why a commodity allocation needs the flexibility to rotate across them rather than staying anchored to one or two.
True commodity diversification means having access to assets that respond to different forces, and the flexibility to shift between them as conditions change. An allocation locked into precious metals can only benefit from one kind of environment. One that draws from a broader commodity universe can adapt.
(The author Anoop Vijaykumar is Fund Manager and Head of Equity, and Divyansh Agnani is Quantitative Analyst at Capitalmind AMC. Views are their own.)
(Disclaimer: The recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times.)