Gold, silver and copper are increasingly finding a place in investors' portfolios, but with global markets witnessing sharp swings, changing interest rate expectations and geopolitical uncertainties, how should investors approach these commodities?
While gold has come under pressure from a stronger US dollar and higher US bond yields, copper continues to draw support from its long-term demand prospects, driven by electrification, AI infrastructure and the energy transition.
So, should investors look beyond gold to diversify their commodity exposure? And how should they position their portfolios for the next five years?
In this edition of ETMarkets Smart Talk, we speak with Tapan Patel, Fund Manager – Commodities at Tata Asset Management, who shares his outlook on gold, silver, copper and crude oil, explains the changing dynamics driving commodity prices, and suggests a 50:30:20 allocation to gold, copper and silver, respectively, for investors looking to build a commodity portfolio for the long term. Edited Excerpts –
Q) October has been a month of sharp divergence across commodities. What has been the biggest driver behind the contrasting moves in gold, crude oil and copper?
A) We have seen non-linearity amongst commodities this year as commodities are following individual fundamentals apart from general correlation. The biggest driver for this divergence is shift in investors positioning due to geo-economic factors.
Nowadays investors have become more selective in terms of asset allocation especially towards defensive assets. We have seen this shift specifically in Gold and Copper. Gold has lost the tag as a ‘defensive asset’ as higher US bond yields are attractive despite of market uncertainty.
Copper is relatively stable in the current year with supportive market fundamentals despite of global economic distress. Crude oil is anyway at firm levels over supply disruption due to US – Iran conflict now termed as ‘Gulf War 3’.
Q) Gold has fallen below the $4,000-an-ounce mark, while crude has rallied sharply. Is this primarily an inflation story, a geopolitical story or a shift in investor positioning?
A) Gold and Crude oil are positively correlated in war like scenario considering historical data. This correlation is absent in the current scenario, and we may call it a mix of all three factors. The stronger dollar – ‘petrodollar’ in the start of the US-Iran conflict diminished demand for bullion as a defensive asset.
Later in the year, tech driven rally and higher bond yields in US pressured bullion prices against high yielding assets. While the higher inflation prompted US Fed to adopt a hawkish stance which is currently affecting the price movement over higher probabilities of further rate hikes.
Q) Copper has weakened despite its long-term role in electrification and infrastructure. Is the recent correction a buying opportunity or a warning that global industrial demand is slowing?
A) Copper prices are trading near at $14450 per ton at LME off from all-time highs of $14875 per ton made in September 2026. (Bloomberg) Prices are witnessing short term headwinds due to macro factors. The long-term demand prospect is bright considering higher usage in electrification and AI related infrastructure.
Additionally, tariff related speculation around US Section 232 has also supported copper prices making ex-US market tight. Any weakness in prices due to short term surplus numbers or slower demand may be considered a market correction while long term trend being supportive over higher demand and supply deficit.
Any change or shift in US trade policy specific to section 232 may ease some of the supply tightness from the physical market.
Q) How do higher interest rates typically affect gold, crude oil and copper differently? Why shouldn't investors treat all three commodities as one asset class?
A) In simple terms, higher interest rates mean reduction in money supply and tighter liquidity. Central banks typically increase interest rates to cool down inflation, lowering consumer spending with higher return over cash savings. The effect of interest rate hike may vary as per the economic scenario and geopolitical conflicts.
Hence, Investors may evaluate gold, copper and crude oil differently due to non-linearity among them. In economic distress, the rate hike is negative for gold, copper and crude oil while in growth period, the rate hike impact may remain negative for gold, but may impact positively for copper and crude oil due to economic expansion.
Apart from this, the geopolitical factors like war, tariffs may play individual part which may change cross asset correlation.
Read more: Beyond tech: Kotak MF’s Shibani Kurian on India’s next innovation-led winners
Q) If the Fed holds rates in October but signals tighter policy ahead, could gold remain under pressure even without an immediate rate hike?
A) Commodity prices respond largely to the impact on the probability of an event happening in the future rather the actual happening. The US Fed adopted hawkish stance in September 2026 sighting one more rate hike in December 2026.
The global market has factored this impact in the prices including gold. If US Fed chairman signals tighter policy beyond December 2026 without an immediate rate hike, global market may respond to the fresh inputs, and gold prices may see further pressure against the quantum of the possible rate hike. This all depends on the comments on guidance from the US Fed and rate forecast.
Q) Gold has corrected sharply in October after a strong run. What would convince you that this is a healthy correction rather than the beginning of a prolonged downtrend?
A) Gold prices have remained under pressure over less supportive macro factors including higher yields, stronger dollar and rate hike from central banks. Considering global market scenario and developments in past few years, we believe structural long term supportive factors are still in play.
The macro situation may shift anytime with change in geopolitical factors and repercussions. A couple of major factors pertaining to US macros and US – Iran conflict are weighing on gold as of now which depicts that current selling may be considered as a short-term correction which may change anytime.
Q) Should retail investors consider commodities as a separate allocation within a diversified portfolio, or should most investors stick to equities, bonds and gold?
A) Past few years have been developmental for the global commodities market and for the investors in terms of asset allocation.
The rise of protectionism in terms of tariffs, tighter trade policies has increased the race to secure hard commodities among the countries. On top of it supply disruptions due to change in weather pattern, natural calamities have made commodities more price sensitive to the smaller supply shocks.
We believe increased capex into infrastructure related to AI, renewables, decarbonisation and EV trend may increase demand for commodities in the longer term. Investors may take beyond gold approach to diversify the asset allocation into commodities along with equity and fixed income markets.
Read more: ET Wealth Expo 2026| India's next investment mega trend is a $1.5 trillion wealth transfer: Ganesh Mohan
Q) What are the biggest mistakes retail investors make when entering commodities after a sharp rally or buying a dip during a correction?
A) Commodity prices generally reflect to demand -supply factors and the price trend are generally cyclical in nature as per seasonality, weather patterns and economic cycles.
Investors may avoid making mistakes considering it as a “perpetual bull run” into a commodity after a sharp rally. One should understand demand – supply shifts, historical price trend and cyclical moves.
Buying a dip during a correction may help to build effective portfolio. However, investors may need to consider roll over costs and change in supply demand dynamics to check over supply or demand destruction scenario.
The biggest mistake to avoid is getting biased to the trend or the position despite of unfavourable market condition.
Q) Finally, if an investor is building a portfolio for the next five years, what role would you assign to gold, silver and industrial commodities—and what would you avoid?
A) As discussed, gold has its own structural supportive factors for the long term, and we believe one should look at gold as a strategic asset making a fix allocation to the portfolio. Silver and industrial commodities like copper have seen higher demand from various industries in recent years.
This demand shift and lower supply may support these commodities in next five years. However, the economic scenario may impact the performance of these commodities making it more data dependant.
For an investor looking to build commodity portfolio for next five years an asset mix of Gold, Copper and Silver is ideal with 50:30:20 ratio respectively.
One should avoid taking exposure in commodities where data and information access is less or hard to interpret to assess the market condition. Finally, investor may need to stick to proper risk management and avoid taking short term speculative bets.
Analyst Disclaimer: The views expressed in this article are personal in nature and in is no way trying to predict the markets or to time them. The views expressed are for information purpose only and do not construe to be any investment, legal or taxation advice. Any action taken by you on the basis of the information contained herein is your responsibility alone and Tata Asset Management Pvt. Ltd. will not be liable in any manner for the consequences of such action taken by you. Please consult your Financial Advisor before investing. The views expressed in this article may not reflect in the scheme portfolios of Tata Mutual Fund. The view expressed are based on the current market scenario and the same is subject to change. There are no guaranteed or assured returns under any of the scheme of Tata mutual Fund.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
