Commodities: Understanding the Recent Surge

Commodities are physical raw materials such as gold, oil, natural gas, copper and agricultural products. Unlike shares or bonds, commodities do not represent ownership in a company or a loan to an issuer. Their value is primarily driven by global supply and demand.

In recent years, many commodities have experienced sharp price movements. Periods of strong growth have been driven by factors such as geopolitical tensions, supply chain disruptions, inflation concerns and increased global demand for energy and industrial metals.

Why Have Commodities Risen Recently?

Several themes have contributed to price increases:

Inflation pressures
Commodities are often viewed as a hedge against inflation. When inflation rises, investors may allocate more capital to assets such as gold or energy.

Supply constraints
Production disruptions, trade restrictions and geopolitical conflict can limit supply, pushing prices higher.

Energy market volatility
Oil and gas markets have experienced significant swings due to global political instability and changes in production policy.

Demand from emerging markets
Growing industrialisation and infrastructure investment can increase demand for metals and energy resources.

While some commodities have seen rapid price appreciation during certain periods, growth is often uneven and cyclical. Commodities can also experience sharp declines when demand weakens or supply increases.

How Investors Access Commodities

Investors typically gain exposure through:

• Commodity focused ETFs
• Managed funds
• Futures contracts
• Shares in resource and mining companies

Each structure carries different risk characteristics.

Risks to Consider

Commodities are generally considered volatile. Prices can move quickly due to global events beyond an investor’s control. Unlike shares, most commodities do not produce income, and returns depend largely on price appreciation.

Other risks include:

• Currency fluctuations
• Geopolitical instability
• Regulatory changes
• Cyclical demand patterns

Commodities can play a role in diversification, particularly during inflationary periods. However, due to their volatility, allocation decisions should be considered carefully within the context of overall portfolio objectives and risk tolerance.