“While gold prices often rise in conjunction with inflation, the recent upturn in the face of inflation’s decline may reflect significant global central bank gold demand,” says Haworth. “The trend is positive, but with inflation slowing, it’s not certain that it’s a sustainable trend.”
As for industrial metals, Haworth says supply concerns are an issue, particularly with more robust demand driven by increased production of electric vehicles. Minerals such as cobalt and nickel are key components for electric vehicle batteries. “We have longer-term supply issues,” says Haworth, “but in the near term, trade constraints such as tariffs have slowed demand.”
Investor considerations around commodities
Investors sometimes consider including commodities in a portfolio to hedge the impact of higher inflation. Commodities may have appeared more attractive when inflation was higher. “The challenge,” according to Haworth, “is that when you invest in a specific commodity, you have to get both decisions right – buying it cheap enough, and having the ability to sell it at a higher price.” Haworth notes that in the meantime, investors are not “paid” in the form of income while they wait to see if prices move higher.
Infrastructure investments also offer opportunities. Options include companies involved in oil pipelines, airports, cell towers, toll roads and other forms of infrastructure. “There is strong demand in many of these areas today,” says Haworth, “but benefitting from owning these investments doesn’t always require that prices move higher. These investments also generate regular income for investors.” Haworth says companies in infrastructure-related businesses tend to have fixed costs but realize bigger profits in times when inflation drives prices higher.
Haworth says commodities sometimes are more effective as a tactical position in a portfolio. “It’s difficult to earn a durable return with direct investments in commodities or commodity futures,” he warns.
Investors should be prepared for frequent changes, both higher and lower, in commodity prices. Talk with your financial professional about opportunities to position your portfolio to capitalize on market trends stemming from the commodities trade.