For years, commodities have largely been viewed through the lens of trading—cyclical assets to buy or sell depending on the next move in prices. But that mindset is beginning to change as structural shifts such as deglobalisation, energy transition, infrastructure spending, supply-chain realignment and geopolitical uncertainty reshape commodity markets.
Gold has already established itself as a strategic asset for Indian investors, but the opportunity is increasingly extending to silver, copper and other critical commodities. At the same time, the traditional equity-debt portfolio may not always offer adequate diversification during inflationary or geopolitical shocks, making commodities an increasingly relevant portfolio sleeve rather than simply a trading opportunity.
So, how much commodity exposure is enough, and should investors look beyond gold?
In an interaction with Kshitij Anand of ETMarkets, Sunil Katke, National Head of Commodity-Retail, Kotak Securities, explains why the commodity conversation is shifting from “Can I trade commodities?” to “What role should commodities play?” He also discusses copper’s structural demand story, the impact of AI and data centres, gold concentration risks and why commodities could act as a portfolio shock absorber rather than portfolio insurance. Edited Excerpts –
Q) For years, commodities were considered cyclical trading instruments rather than long-term investment assets. Is that changing now?
A) Yes, I believe the perception is changing materially. Commodities are increasingly being viewed not merely as trading instruments, but as an important component of long term portfolio construction.
The key change is that commodities now sit at the intersection of several structural themes deglobalisation, energy transition, infrastructure spending, supply-chain realignment, central-bank diversification and geopolitical uncertainty.
Gold is the clearest example, but the same structural thinking is emerging around copper, silver and other critical commodities.
For investors, the conversation is therefore moving from “Can I trade commodities?” to “What role should commodities play in my portfolio?”
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Q) With equity markets going through their own challenges, can commodities improve diversification when inflation and geopolitical risks rise? Should Indian investors now think of commodities as an asset allocation tool rather than just a trading opportunity?
A) Absolutely. The traditional equity-debt portfolio may not always provide sufficient diversification during inflationary or geopolitical shocks because stocks and bonds can sometimes come under pressure simultaneously.
Commodities can provide a different source of return because their performance is linked to physical supply demand dynamics, inflation and global macroeconomic conditions. Gold, in particular, can play a defensive role during periods of uncertainty, while energy and industrial metals can benefit from different stages of the economic cycle.
I would therefore encourage investors to think of commodities as one component of asset allocation not as a replacement for equities or fixed income. The objective should be diversification and risk management rather than trying to time every commodity cycle.
Q) How much commodity exposure is too much? Should a retail investor own individual commodities or take a broader basket approach?
A) There is no universal number because allocation should depend on the investor's overall portfolio, risk appetite, investment horizon and objectives.
For most retail investors, a diversified approach is more sensible than taking concentrated positions in one commodity. Different commodities behave very differently, gold is driven by monetary and safe haven factors, crude by global growth and geopolitics, while copper is closely linked to industrial activity and infrastructure.
The important point is that investors should look at commodities as a portfolio sleeve, rather than treating every commodity as an independent trading bet.
And leveraged derivatives should be approached very differently from unleveraged long term exposure. Still, one may have 15-20% of exposure in commodities in a portfolio largely focussed on gold and silver.
Q) Copper has hit record highs. Is this a cyclical rally—or the beginning of a structural repricing of the metal?
A) I see both cyclical and structural elements, but the structural story is becoming increasingly important.
Copper is uniquely positioned because the world is simultaneously demanding more electrification, renewable infrastructure, grid investment, EVs, data centres and power infrastructure, while supply growth is becoming increasingly difficult.
New copper mines take years to develop, grades are declining in some mature assets and permitting and capital requirements are significant. That creates a potential mismatch between demand growth and supply response.
So, while short term corrections are inevitable, I believe the market is increasingly recognising that copper could command a structurally higher long term valuation than in previous cycles considering structural supply concerns from mines.
Q) We have spent years talking about EVs driving copper demand. Is AI and the data-centre boom now becoming an even bigger demand driver?
A) AI is emerging as an important new leg of the copper-demand story.
The AI revolution is not only about semiconductors and computing power. Every additional data centre requires enormous amounts of electricity, power distribution, transformers, cabling, cooling infrastructure and grid investment and copper is critical across this ecosystem.
EVs remain an important structural demand driver, but AI and data centres have introduced a new source of electricity and infrastructure demand that was not fully anticipated a few years ago.
The bigger story is therefore not EVs versus AI. It is electrification plus AI plus grid expansion, all competing for a metal where supply cannot be increased overnight.
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Q) Gold has become the default hedge for Indian investors. But can too much gold actually become a concentration risk? Has gold become more than an inflation hedge?
A) Yes. Gold has clearly evolved beyond being simply an inflation hedge.
For Indian investors, gold has traditionally been associated with wealth preservation and inflation protection. Today, its role has expanded to include currency diversification, geopolitical hedging, central bank reserve diversification and protection against systemic uncertainty.
But that does not mean an investor should keep increasing gold exposure indefinitely. Any asset can become a concentration risk if its allocation becomes disproportionate to the overall portfolio.
I would look at gold as a strategic diversifier rather than a one way bet. The objective is to have enough exposure for it to meaningfully contribute during periods of stress, without allowing it to dominate the portfolio.
Q) At what level of crude prices should Indian equity investors start worrying about inflation, margins and the current account?
A) I would be careful about defining a single price level. For India, the impact of crude depends not just on the absolute price but also on how quickly prices move, the duration of the move, the rupee-dollar exchange rate and how much of the increase is absorbed by different stakeholders.
A sharp and sustained move above the $90–100 per barrel zone would become increasingly uncomfortable for India, particularly if accompanied by rupee weakness. It could put pressure on inflation, corporate margins, the current account and ultimately consumption.
The bigger risk is therefore not one particular crude price, but a sustained oil shock combined with currency depreciation.
Q) Can commodities protect your portfolio when both stocks and bonds fall?
A) They can, but investors should not expect commodities to provide protection in every market environment.
That distinction is important. During inflationary shocks, geopolitical crises or supply disruptions, commodities particularly gold can behave very differently from traditional financial assets.
Gold has historically been the stronger portfolio diversifier, while other commodities can provide protection against specific inflationary or supply side shocks.
So I would describe commodities as a portfolio shock absorber rather than portfolio insurance. Their greatest value comes from reducing dependence on a single return engine and improving portfolio resilience across different economic regimes.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
