Gold: The most effective commodity investment − 2026 edition

From a supply perspective, gold and other commodities differ. Gold production is more geographically diverse making supply less exposed to disruption. In addition, and unlike gold, most commodities are highly sensitive to changes in physical inventory. For oil, copper, natural gas, or agricultural commodities such as cocoa, inventories provide the critical buffer between supply and consumption. 

The tighter that buffer becomes, the more exposed the market is to shocks, increasing the likelihood that prices are pushed higher (Chart 2, 3 & 4). Gold is different. Its above-ground stock is large relative to annual mine production and it is not “consumed” in the same way as energy, metals or agricultural commodities. As a result, gold’s price is less a function of short-term inventory scarcity and more a function of demand.

The investment perspective

Although a commodity, gold’s investment characteristics differ largely from those of other broad commodities. There are in fact four main differentiators between gold and the broader commodities complex, making their role in a portfolio very different. 

1. Better returns

Investors have long considered gold a beneficial asset during periods of uncertainty. Yet, historically, gold has generated long-term positive returns in both good and bad economic times. And when compared to commodities, gold has outperformed not only broad-based indices but also most sub-indices over the past 3, 5, 10 and 20 years (Chart 5). In fact, a number of sub-indices and broad commodities have fallen over the past 20 years.

And while gold has outperformed all other sub-asset classes over a 20-year horizon, it has at times underperformed over shorter horizons (Chart 6).

Investors accessing commodities through futures are exposed not only to price changes but also to the shape of the futures curve. For many commodities, storage and financing costs can result in periods of contango, creating a drag on returns as positions are rolled forward. However, unlike gold, commodities such as crude oil also carry a convenience yield associated with physical ownership and immediate availability. During periods of tight inventories, this convenience yield can exceed storage and financing costs, leading to backwardation and positive roll returns for futures investors. As a result, the return impact of rolling can vary significantly through time and across commodity sectors.

Gold's market structure is different. Its large above-ground stock, low storage costs and limited benefit from immediate physical possession mean that the convenience yield is generally limited and the front end of the futures curve has historically remained relatively flat. Consequently, futures returns for gold have closely matched spot returns: between June 2006 and June 2026, gold returned 9.9% in spot terms and 8.9% through futures. Over the same period, oil generated a -0.2% spot return but a -7.2% futures return due to rolling and collateral costs (Chart 7).

Finally, the diversity of gold’s sources of demand help to make gold a less volatile asset than other commodities (Chart 8). As such, gold can enhance portfolio stability and improve risk-adjusted returns.

2. Effective diversification

Gold has important diversification properties that come into their own during periods of systemic risk. In fact, gold has little to no correlation with many other assets, including commodities, underscoring that its role as a diversifier is distinct and cannot be replicated through broad commodity exposure alone (Chart 9).

Crucially, however, the correlation is dynamic, changing across economic cycles to the benefit of investors. Like other commodities, gold is positively correlated to stocks during periods of economic growth when equity markets tend to rise. But importantly, gold is typically negatively correlated with stocks during risk-off periods, protecting investors against tail risks and other events that can have a significant negative impact on capital – a protection not offered by broad commodities (Chart 10). Gold is also a more effective diversifier than other precious metals such as silver, as these other metals depend, to a greater extent, on industrial demand.

This dynamism reflects gold’s dual nature as both a consumer good and an investment. When economic conditions are benign, consumer spending on items such as jewellery or technological devices tends to increase, and this works in gold’s favour. During times of systemic risk, however, market participants seek high-quality, liquid assets that preserve capital and minimise losses. This can also benefit gold by boosting investment demand and driving up prices. In the Q4 2018 global equity selloff the MSCI USA index fell 14% and commodities fell 9%, yet gold rose 8%. And in the COVID selloff (Q1 2020), the MSCI USA index fell 20% and commodities fell 23%, while gold returned 6%. In both of these recent cases, gold not only protected portfolio assets but also delivered positive returns, while broader commodities behaved more like a risk-on asset (Chart 11).

3. Protection against inflation

Commodities are often used for protection during periods of high inflation. While it is true that commodities have performed well during inflationary periods, gold has performed better. And in periods of low inflation commodities delivered negative nominal returns while gold posted positive returns, reflecting increased demand when economic conditions are robust (Chart 12).

4. Gold is liquid 

The gold market is large, global and highly liquid. Unlike most other commodities, investors can access gold in a number of ways – an important indicator of how gold operates within a differentiated market. While futures dominate most commodity trading and physical delivery is rare, around 48% of gold trading occurs over-the-counter (OTC) linked to physical delivery; futures account for about 50% (Chart 13). More specifically, on the global futures markets, daily volumes average US$186bn. On the COMEX alone, daily volumes averaged US$53bn over the past 10 years, (Chart 14) second only to oil. On the OTC market, estimated volumes are similarly strong at around US$180bn. There is a thriving physical gold-backed ETF market too, with daily volumes averaging US$7.2bn. Overall, daily trading in the global gold market averaged US$373bn in 2025. The scale and depth of the market means that it can comfortably accommodate large, buy-and-hold institutional investors.

Portfolio impact and macro drivers

Portfolio impact

Commodity exposure is generally limited to less than 10% of an investment portfolio, and in many cases is much lower. Gold usually accounts for less than 10% of that amount – in other words, most portfolios will have less than 1% exposure to gold. And while commodities can help reduce portfolio volatility, our analysis suggests that adding a 2.5%–10% portfolio allocation to commodities would not have improved risk-adjusted returns over the past 20 years. 

Gold, however, can do much more.

Looking back over the past two decades, an allocation to gold provided two key benefits: it increased absolute returns and reduced portfolio volatility when compared either to a portfolio with no gold exposure, or one with only a broad-based commodity exposure (Chart 15).

While vital to assess the degree of portfolio diversification, recognition of its origins is equally significant. Our analysis shows that adding gold and commodities to a portfolio can increase diversification benefits and reduce overall portfolio risk (Charts 16 & 17). That said, gold remains an indispensable strategic asset for investors. Its persistently low correlation with other asset classes makes it unmatched for portfolio diversification. In our hypothetical portfolio a 5% allocation to gold contributes 28% to total diversification benefits – ranking it first among all assets (Chart 18). On the flip side, commodities, while also comprising 5% of the capital allocation, contribute 15% to this diversification benefit.

Our analysis of investment performance over the past 3, 5, 10 and 20 years also emphasises gold’s positive impact on an institutional portfolio over multiple investment horizons (Table 2).

Macro drivers

It is also worth examining the behaviour of commodities and gold in different market regimes. Framing it this way – not via investment time periods, per se, but in actual economic and market environments – makes it possible to identify when commodities or gold may do better going forward.

The framework divides the macro environment into four phases: ‘QE-style goldilocks’, ‘Fear of the Fed’, ‘Recovery’, and ‘Risk-off’, with each phase defined by the direction of bond yields and corporate spreads (Chart 19).

The average historical returns for each phase can be seen in Chart 20. Unsurprisingly, risk-off and QE-style goldilocks are the best environments for gold. The latter is also characterised by a higher equity-bond correlation. But interestingly, gold provided positive returns in all regimes, providing more stable returns across cycles. Commodities, on the other hand, do best in the recovery phase – an environment of resurgent economic growth twinned with rising inflation and interest rates – and they fare badly in a recession. 

Conclusion

Gold may be a commodity, but it is not a typical one. Its unique supply-and-demand dynamics, limited exposure to roll costs, diversification benefits and resilience across market environments set it apart from the broader commodity complex. For strategic investors, gold should therefore be considered a distinct portfolio allocation, complementary to – but not interchangeable with – a broad commodity exposure.