Goldman Sachs believes commodities should still be diversified after the energy shock, with the focus extending from oil and gas to power, metals, and gold

Overview

This is a Goldman Sachs Global Investment Research commodities strategy report focused on reassessing the diversification value of commodities in stock-and-bond portfolios after the Hormuz energy supply shock gradually eased. The report argues that the recent energy shock is just one of several cases over the past year showing that strategic portfolios can still use commodities to hedge supply shocks, inflation pressure, fiscal sustainability concerns, and rising demand for real assets.

Core views

The core view is that commodities are not a single hedging tool; different shocks require different asset mixes. Oil and gas remain important sources of traditional inflation shocks, but future price upside and inflation pressure may appear more frequently in power, industrial metals, and precious metals markets. Copper, power, lithium, and aluminum are supported by EVs, renewable energy, grids, defense, and AI competition, while gold has greater hedging value when institutional credibility and macro policy risks rise.

Analysis framework

The report uses an analytical approach combining macro scenarios with individual commodity supply-demand dynamics: it first uses the Hormuz shock to illustrate the portfolio value of commodities relative to equities and bonds, then distinguishes three types of inflation mechanisms, and finally discusses the effects of energy, copper, gold, power, and metal supply concentration on prices and portfolio allocation.

Methodology notes

• Macro allocation and inflation hedgingThree-type inflation shock hedging framework

  Late-cycle inflation, supply disruption, institutional credibility risk

  The report argues that inflation usually comes from three different mechanisms: late-cycle inflation caused by economic overheating is best hedged with cyclical commodities such as oil and industrial metals; supply disruptions are better hedged with a broad commodity basket excluding precious metals; and when inflation expectations stem from concerns about fiscal, monetary, or institutional credibility, gold is more effective.

• Futures return decompositionRoll yield

  roll yield

  Roll yield comes from the price difference when investors roll futures contracts nearing expiration into longer-dated contracts; when the futures curve is in backwardation or near-month contracts are more expensive, roll yield is positive. The report notes that rising oil prices combined with strong roll yield supported total commodity returns during the conflict.

• Supply-demand balance analysisStructural demand and long-cycle supply framework

  Copper's strategic demand and lagged supply response

  The report expands copper demand from traditional cyclical demand to strategic sectors such as grids, power, defense, EVs, renewable energy, and data centers, while emphasizing that deeper mines, lower ore grades, and higher investment requirements will limit rapid supply response.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Broad commodity basket (excluding precious metals)

  Portfolio hedging tool for supply disruptions and input cost shocks

  Strengths

  When supply sources and timing are unpredictable, a diversified basket is more robust than a single commodity; total commodity returns outperformed equities and bonds during the conflict.

  Weaknesses

  High volatility, and prices may retreat after supply shocks ease.

  Comparison

  Compared with gold, it is better suited to hedge inflation up and growth down caused by supply disruptions such as Hormuz.

  Risks

  A quick resolution of the conflict, weaker global demand, or inventory recovery could reduce returns.

• Oil, gas, and energy

  Core assets for traditional energy supply shocks and inflation transmission

  Strengths

  Supply concentration and geopolitical risks still exist; during the conflict, oil and oil-product prices rose sharply, and oil roll yield also supported returns.

  Weaknesses

  Global market resilience was stronger than expected, and declining Chinese LNG and crude imports eased tightness; crude prices have already fallen significantly after Hormuz reopened.

  Comparison

  Historically, oil and gas have had a greater impact on inflation, but the report believes that power and metals may also see price spikes more frequently in the future.

  Risks

  Long-term oil and gas demand growth may be constrained by accelerating EV adoption, renewable energy, and grid investment.

• Copper

  A structural beneficiary of investment in grids, power, AI, defense, EVs, and renewable energy

  Strengths

  Demand is increasingly strategic and may be less affected by economic slowdown and high prices than traditional construction or white goods demand; supply responds slowly because mines are deeper, ore grades are lower, and capital spending is rising.

  Weaknesses

  Higher prices may stimulate scrap copper supply and substitution toward materials such as aluminum.

  Comparison

  Compared with traditional cyclical metals, copper demand is shifting from cyclical to strategic; compared with oil and gas, copper is more supported by electrification and energy security themes.

  Risks

  Policy and tariff expectations may distort regional inventories and trade flows; substitution, more scrap supply, or macro slowdown could ease the tight balance.

• Gold

  A key neutral asset for institutional credibility, fiscal sustainability, and macro policy risk

  Strengths

  Its value does not depend on endorsement by any single government; reserve diversification by emerging market central banks remains structural support; gold's share in private portfolios is still small, leaving room for further allocation.

  Weaknesses

  It is not an effective hedge in the early stage of late-cycle inflation and supply disruptions, and may fall because of rate hike expectations and margin pressure; near term it is also pressured by a hawkish Fed and ETF demand.

  Comparison

  Compared with oil and industrial metals, gold is better suited to hedge institutional credibility risk rather than general supply shocks.

  Risks

  If real rates rise, the Fed stays hawkish, or ETF outflows continue, short-term upside in gold may be limited.

• Power, lithium, and aluminum

  Demand-beneficiary assets from the energy transition, grid expansion, renewable energy, EVs, and AI competition

  Strengths

  Bottlenecks in power infrastructure and concentration in metal smelting raise the risk of tighter prices; related demand is supported by national security and energy security themes.

  Weaknesses

  The report does not provide standalone price targets, and some conclusions depend on whether structural demand continues to materialize.

  Comparison

  Compared with oil and gas, these assets are more directly driven by electrification, data centers, and grid investment.

  Risks

  Policy changes, supply expansion, substitute technologies, or slower demand could affect the price path.

Key data

• Report date2026-06-28 7:06PM EDTFrom the timestamp on the report cover.
• Duration of the Hormuz shock16 weeksThe report states that this disruption in the Strait of Hormuz significantly reduced oil and gas supply and caused broad increases in energy prices.
• Energy price increase during the conflictCrude oil up 43% from pre-war levels, oil products up 63%, European natural gas up 50%, Asian LNG up 70%The data correspond to May levels in the third month of the conflict.
• Global GDP outlookGlobal GDP growth of 2.4% this year, down 0.4 percentage points from 2025The report says that if the reopening of Hormuz continues, the long-term scarring to global economic activity and energy demand should be limited.
• Potential growth shock under a longer conflictAbout 2 percentage points lower versus pre-war expectationsThe report uses this scenario to illustrate the potential diversification value of commodities.
• Copper demand structureBy 2030, grids and power infrastructure could drive more than 60% of copper demand growthThe baseline comparison is copper demand growth relative to 2025.
• LME copper price forecast$13,735/t by end-2026, with a 2027 average price of $13,800/tGoldman Sachs raised its forecast due to a tighter copper balance.
• Long-term copper equilibrium priceAbout $15,000/t required by 2035The report believes this price would help sustain aging mines, increase scrap copper recycling, encourage substitution, and support new mine development.
• Gold price increase and forecastGold has risen 123% since 2022; end-2026 forecast is $4,900/tozThe main support comes from reserve diversification by emerging market central banks.
• Central bank gold buying assumption50 tonnes/month in 2026, 40 tonnes/month in 2027The report believes central bank gold buying will slow but remain a structural trend.
• Central bank survey45% of surveyed central banks expect to increase their own gold reserves over the next 12 months, and about 90% expect global gold reserves to riseThe sample consists of 76 central banks surveyed by the World Gold Council from February to May.
• Strategic petroleum reserve rebuildingDriven by demand of more than 1mb/dThe report expects oil product demand to rebound after the Iran conflict, including demand for strategic petroleum reserve rebuilding.

Impact & implications

The implication for portfolios is that commodity allocation should not focus only on oil and gas, but should expand to power, copper, lithium, aluminum, and gold, which are supported by structural demand and supply bottlenecks. Oil and gas can still hedge traditional energy shocks, but as grid bottlenecks, concentrated metal smelting, rare earth export controls, and rising power prices intensify, future inflation pressures may come more from power and metals. Gold is better suited as a hedge against institutional credibility, fiscal sustainability, and macro policy risks.

Risks

• The reopening of the Strait of Hormuz and recovery in energy flows may cause crude oil prices to continue falling, weakening the short-term returns from the energy shock.
• Commodity volatility is high, and prices may correct quickly after supply shocks ease.
• If the conflict lasts longer than expected, global growth could fall significantly below pre-war expectations, which could in turn suppress demand for some commodities.
• A hawkish Fed, market pricing for rate hikes, and weaker ETF demand may continue to pressure gold's short-term performance.
• Metal and energy supply is highly concentrated in geopolitical or trade-dispute hotspots, which may cause price spikes but may also lead to policy intervention and distorted trade flows.
• Rising copper prices may trigger more scrap copper supply and substitution toward materials such as aluminum, easing some of the tightness.

What to watch

• Progress in reopening the Strait of Hormuz, implementation of the U.S.-Iran agreement, and whether energy flows continue to normalize.
• Whether supply and demand for oil products such as gasoline, diesel, and jet fuel remain tight longer than crude oil.
• Whether strategic petroleum reserve rebuilding brings additional demand of more than 1mb/d.
• Expectations for U.S. copper import tariffs, the scale of copper flows into the U.S., and the balance of copper markets outside the U.S.
• Whether LME copper prices stay in the low- to mid-$13,000/t range and move closer to Goldman Sachs' forecast.
• The pace of gold buying by emerging market central banks, gold ETF positioning, and the Fed's easing path around 2027H2.
• The pull on power and metals demand from grid bottlenecks, U.S. power price inflation, AI data center investment, EV penetration, and renewable energy installations.
• The impact of China's export controls on rare earths and related products on the U.S. core producer price index and industrial metal prices.