Alternative Investments – The Power of Commodities

When you’re starting out as an investor, the usual go-to options are stocks, ETFs, and bonds. These are tried and true, and they form a solid base for any portfolio. But, as we talked about last week, they don’t cover the whole investment universe. That’s where alternative assets come into play — think hedge funds, private equity, real estate — and yes, commodities. They offer a lot of potential for diversification, and in the right conditions, they can even outperform when traditional markets hit a rough patch.

Hedge funds, private equity, and real estate are all solid options, but commodities bring a different set of benefits to the table.

What are commodities?

When most people hear “commodities,” they probably think of gold, silver, oil, or maybe corn. And that’s a decent start, but the category is much broader than that. Essentially, a commodity is any raw material or agricultural product that can be bought and sold — and importantly, it’s standardised across the industry.

So, no matter who mines or drills it, one barrel of oil or one ounce of gold is exactly the same as the next.

Because of this standardisation, producers don’t have much say over pricing. Instead, prices are driven by global supply and demand, macroeconomic events, and market sentiment.

For example, a good rainy season can improve the tons of wheat harvested, but a drought can prevent the wheat from growing in the next season. A disease can wipe out millions of farm animals, driving prices higher. Political tension in the Middle East can send oil prices soaring and economic uncertainty can send gold through the roof!

Commodities come in two main types:

• Hard commodities: These are natural resources that are mined or extracted — metals like copper, platinum, and gold, or energy products like oil, natural gas, and coal.

• Soft commodities: These are agricultural goods or livestock — corn, coffee, sugar, cocoa, cotton, cattle, and timber.

Each type has its own risks and rewards. Hard commodities tend to be affected by industrial demand or geopolitical tensions, while soft commodities are more sensitive to weather and seasonality. But no matter which category you’re looking at, both can play a significant role in boosting your portfolio’s strength.

How do commodities add resilience to a portfolio?

One of the biggest perks of commodities is their ability to act independently from traditional markets. Unlike stocks, which often move together during big market swings, commodities can move on their own — or even in the opposite direction. So, while the S&P 500 might be tumbling, certain commodities (especially gold) might stay stable or even rise.

Gold, for instance, is often seen as a safe haven. When inflation is high, when there’s geopolitical instability, or when the economy seems shaky, people flock to gold to protect their wealth. Oil, on the other hand, can spike when there’s a supply shock, and agricultural commodities can stay steady when basic goods are still in demand, even during tough economic times.

This kind of diversification can make a big difference. Even a small allocation to commodities can reduce overall portfolio volatility. Take this real-world example: During the trade tariff war, global stock markets tanked, with the S&P 500 dropping 20%. Meanwhile, gold surged 17%. Having some gold in your portfolio would have cushioned the blow during that downturn.

Of course, commodities aren’t completely risk-free. Extreme weather can wipe out crops, a sudden drop in industrial demand can tank metal prices, and OPEC’s policy changes can send oil prices swinging. But that volatility is exactly what makes commodities so valuable for diversifying a portfolio.

When traditional assets are under pressure, commodities can thrive, and the reverse is true as well.

How can I invest in commodities?

So, how do you actually invest in commodities? There are two main ways: direct and indirect.

Direct investing means physically buying the commodity itself — like holding gold coins, taking delivery of barrels of oil, or owning cattle. This isn’t very practical for most people (unless you’re running a vault or a farm). Direct investing is typically reserved for institutions or producers.

For most investors, indirect exposure is the way to go. Here are a few ways to get involved:

• ETFs and ETNs: These are by far the easiest and most accessible. You can invest in funds that track individual commodities (like GLD for gold, or USO for oil) or even a mix of commodities (DBC, for example, covers a broad range). They trade like stocks and require no active management on your part.

• Commodity-producing stocks: Another option is buying shares in companies that mine, extract, or grow commodities — think gold miners, energy companies, or agriculture producers. While this isn’t direct exposure, these stocks often move in sync with commodity prices and can provide extra leverage, along with potential dividends.

Both methods have their pros and cons. ETFs are simple and liquid, making them ideal for most investors. On the other hand, investing in commodity-producing companies offers indirect exposure with the added bonus of possible dividends. The right choice depends on your goals, timeline, and risk tolerance.

Commodities have a unique role to play in today’s markets — they’re tangible, globally traded, and influenced by forces that often sit outside the usual stock and bond narrative. That makes them incredibly valuable when the investment landscape shifts. While other assets might move in sync, commodities often dance to their own beat, offering a rare layer of resilience. And thanks to modern tools like ETFs and commodity-linked stocks, tapping into this space is more accessible than ever.

In a world where uncertainty is constant, commodities give you options. They help smooth out volatility, act as a hedge against inflation, and offer growth potential when traditional strategies hit a wall. Whether you’re just getting started or looking to strengthen your portfolio’s foundation, it’s worth giving commodities a seat at the table.