Can commodities be an antidote to geopolitical anxiety?

Gold had recovered strongly in the 21st century

Source: Bloomberg, Waverton. Data as of 24.10.25

This year was, many hoped, potentially going to see geopolitics being less of an issue for markets, but new and significant issues already arise. One lesson from history, including last year, is that markets can dip because of short-term worries but then rally strongly if those issues do not change a positive global corporate earnings outlook.

That does not mean that savers and investors do not, or should not, care about shorter-term volatility; it can be very damaging. The importance of being properly diversified is always clear but, more than that, portfolios need actively to cope with volatility and be resilient if  higher inflation results.

Inflation Risks?

New tariff threats come on top of existing tariffs imposed last year which are already raising around $30bn a month in revenue. So far, we have seen exporters to the US accepting a hit to profits and inflation risks have appeared benign; they won’t want that to be a permanent hit to profitability. However, even with exporters sharing the pain, the number of US interest rate cuts expected this year has fallen with only one or two now priced into markets. If expectations get more gloomy on inflation, further reducing the prospects of rate cuts, a negative reaction can be expected in both bond and equity markets. Inflation is also a negative for fiat currencies; US dollar weakness has been evident last year. CIO Bill Dinning has discussed tariffs, inflation and US dollar weakness here.

Commodities can provide inflation resilience as production becomes uneconomic unless prices are linked to rising costs (e.g. energy and wages) which drive inflation; this allows commodities to act as a natural hedge against inflation in periods when equities and bonds can be correlated and both fall. 

Geopolitical Risks: Real Assets can provide uncorrelated protection against equity risks and fiat currency debasement

Real Assets exposures in our portfolios are, of course, more than just our gold holdings (see Real Assets – We have lift off) but gold and gold miners have certainly been benefiting our portfolios in the last year. Geopolitical shocks can be negative for equities but positive for commodities as people seek safe havens and inflation resilience, for example. If investors worry about fiat currencies because central banks can print more (“quantitative easing”), commodities like gold have an obvious attraction. Real assets can be a great diversifier and mitigate various risks.

Is gold expensive?

Gold has done well but it is not necessarily expensive. Miners are being disciplined, so far, so supply has not increased significantly. This chart, from our latest Global Outlook, shows that the gold price per troy ounce does not look stretched, compared to history, relative to US equities (the S&P500 index price)

Gold price per troy ounce relative to S&P500 Index price - 1971 – current monthly

Source: Bloomberg, W1M. As at 31.12.25

Gold - entering a new bull market?

The history of gold cycles

Source: Bloomberg, Tavi Costa. As at 30.09.25.

Not only is the supply of gold remaining constrained, there are structural demand drivers in place. As discussed, fiat currencies carry risks; this has led to increased demand for gold from central banks holding large amounts of USD exposure wanting to diversify; such buyers are not necessarily price sensitive. In addition to this, it is not the case that private investors are major holders of gold and could also be buyers.

Commodities enhance the diversification and inflation resilience in global portfolios:

Protection Strategies further enhance the ability of portfolios to cope with volatility.

How did it perform during Covid-19 crisis?

Actual PS performance vs S&P 500 (TR)

Back-tested returns in previous crises

*Inception: 19th April 2016  Data to from 31.12.19 to 31.03.20

Source: Goldman Sachs, Bloomberg, W1M.

Figures are calculated on a total return basis, net of fees.

In addition to diversifying across equities, bonds and real assets, W1M has proprietary protection strategies. Should geopolitics lead to significant market volatility, such strategies can benefit from such environments, providing positive returns to mitigate losses in other asset classes, for example. Such strategies can be thought of as being similar to taking out insurance.

Conclusion

Geopolitical risks can move markets in the short-term; ultimately such risks only matter in the long run if they damage the growth or inflation outlook. Most years see volatility and equity markets can often be down but end up registering a positive return. But, investors are not powerless in the face of volatility. Diversication always matters but commodities can provide inflation resilience and uncorrelated returns with equities; protection strategies can further enhance the resilience of portfolios in periods of unusual volatility.

Diversification Matters

W1M MPS

• Swift, efficient and consistent trade execution
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• Underlying funds accessed at institutional rates or better
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