Written by Suryaveer Singh
In a span of months, the US-Iran conflict has produced an air war, a ceasefire, a signed agreement, and renewed strikes on shipping in the Strait of Hormuz. Whatever the latest headlines, the lesson remains the same: geopolitical supply shocks are inherently unpredictable, and crises that appear resolved can re-emerge with little warning. Commodities have been among the best-performing major asset classes year-to-date, and while some gains have retraced as tensions ebbed and flowed, the episode reinforces our long-held view: commodities deserve a strategic role in diversified portfolios.
First, commodities hedge risks that traditional assets cannot. Supply disruptions tend to raise inflation while slowing growth, pressuring equities and bonds simultaneously. Commodities are among the few asset classes that can benefit from supply shortages, while broad commodity baskets have historically provided some of the strongest protection against inflationary supply shocks. Gold, meanwhile, has served as a hedge against fiscal sustainability concerns and currency debasement.
Second, structural demand and constrained supply strengthen the case for industrial metals. Many of today’s defining investment themes – including artificial intelligence, electrification, renewable energy, and defense – are inherently commodity intensive. Grid expansion and power infrastructure alone are expected to account for more than 60% of copper demand growth through 2030. New supply, meanwhile, remains constrained by declining ore grades, lengthy permitting timelines, and limited discoveries. As the chart below illustrates, production is also concentrated in regions vulnerable to geopolitical and trade disruptions. As countries increasingly prioritize security of supply over cost, global supply chains may become more regionalized – a less efficient system that is likely to keep commodity prices structurally elevated.
Third, gold continues to play a unique role within portfolios. Central banks, particularly in emerging markets, have steadily increased gold reserves since 2022 as they diversify away from traditional reserve currencies, and a record 45% expect to increase holdings over the next year. While higher real interest rates may create periods of price weakness, steady official-sector demand and gold’s relatively low allocation within private portfolios continue to support its long-term investment case.
That said, commodities require a long-term perspective. They are among the most volatile major asset classes, prone to sharp drawdowns and extended periods of underperformance when supply disruptions fail to materialize or demand weakens. Investors should size allocations appropriately and be prepared to tolerate that volatility.
The case for commodities is not about positioning for the next geopolitical flashpoint. Rather, it reflects a world characterized by more frequent supply disruptions, structurally stronger demand for critical resources, and persistently elevated inflation risks. Against this backdrop, a strategic allocation to a diversified commodity basket remains an important source of portfolio diversification and resilience.
DISCLOSURES
The information provided is for educational purposes only. The views expressed here are those of the author and may not represent the views of Leo Wealth. Neither Leo Wealth nor the author makes any warranty or representation as to this information’s accuracy, completeness, or reliability. Please be advised that this content may contain errors, is subject to revision at all times, and should not be relied upon for any purpose. Under no circumstances shall Leo Wealth be liable to you or anyone else for damage stemming from the use or misuse of this information. Neither Leo Wealth nor the author offers legal or tax advice. Please consult the appropriate professional regarding your individual circumstance. Past performance is no guarantee of future results.
This material represents an assessment of the market and economic environment at a specific point in time. It is not intended to be a forecast of future events or a guarantee of future results.
Neither Asset Allocation nor Diversification guarantee a profit or protect against a loss in a declining market. They are methods used to help manage investment risk.
Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Use of leveraged commodity-linked derivatives creates an opportunity for increased return but, at the same time, creates the possibility for greater loss.
