ETMarkets Commodity Talk| A 10% allocation to gold and silver? Motilal Oswal's Manav Modi explains the commodity playbook

Gold has slipped below the $4,000-an-ounce mark, crude oil has rallied sharply, and copper has faced renewed pressure—highlighting the vastly different forces driving global commodities.

For investors, the key question is how to navigate this divergence and whether commodities deserve a dedicated place in a diversified portfolio. Should investors buy the dip, chase the rally, or take a more measured approach?

In this edition of ETMarkets Commodity Talk, Manav Modi, Commodities Analyst at Motilal Oswal Financial Services, decodes the contrasting moves in gold, crude and copper.


He also shares his views on the role of commodities in a long-term portfolio, the common mistakes investors should avoid, and why an allocation of at least 10% to gold and silver could be considered based on an investor's risk profile and investment horizon. 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) The key driver has been how differently each market responds to the same mix of geopolitical risk, inflation and interest rates. Supply concerns linked to the Iran conflict and elevated oil prices have supported crude and some industrial metals.

For gold, the resulting inflation concerns have raised expectations that US rates may stay high, lifting the dollar and yields and weighing on bullion.

Copper has been caught between longer-term electrification demand, supply tightness and near-term concerns about growth, US stockpiling and the pace of AI-related investment.

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) It is a combination, but the main transmission channel has been geopolitics feeding into inflation and interest-rate expectations. Rise in risk premium and supppy shock and supported oil that has revived fears regarding inflation being sticky or higher, keeping US rates and the dollar firm.

That has hurt gold, despite the usual safe-haven appeal of geopolitical uncertainty. Position unwinding after gold’s strong run likely amplified the decline. The October 28 Fed decision to hold rates, alongside two dissents favouring a hike, underlines the market’s sensitivity to the prospect of tighter policy.

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) The correction is a reason to reassess expectations, but not by itself proof of a broad industrial-demand downturn. Copper’s rally had been amplified by production cuts, acute supply shortage, US stockpiling ahead of potential tariffs and enthusiasm about AI data-centre demand.

Recent caution over AI spending and lme to CME arbitrage has influenced prices. At the same time, Chinese premiums have risen and inventories there have been drawing down, suggesting physical demand and supply conditions remain mixed. For long-term investors, the opportunity depends on price and horizon; the near-term signal is still uncertain.

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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) Higher rates usually weigh directly on gold by increasing the opportunity cost of holding an asset that pays no income and by supporting the dollar. Crude has no simple inverse relationship with rates: supply disruptions can lift it even when tighter policy threatens demand.

Copper is more exposed to financing costs and expectations for construction, manufacturing and infrastructure activity, so high rates can hurt its demand outlook. Their distinct demand drivers, supply risks and sensitivities mean that treating all three as one uniform commodity trade can obscure important risks.

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) Yes. Markets respond to the expected path of rates, not only to the decision on the day. The Fed held its target range at 3.75%–4% on October 28, but said inflation remained elevated; two policymakers dissented in favour of a quarter-point increase.

If investors conclude that rates may rise or stay high for longer, US yields and the dollar could remain firm and weigh on gold. A pause alone may not support prices unless inflation data or Fed guidance reduces those expectations.

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) I would look for selling pressure to ease and gold to hold above important support areas, alongside a stabilisation in US yields and the dollar.

A decline in oil prices that reduces inflation concerns, followed by less hawkish Fed expectations, would also improve the outlook. Continued central-bank and ETF demand could provide a fundamental cushion.

By contrast, repeated failures to recover, persistently rising yields and a stronger dollar would suggest the correction is becoming more prolonged.

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) Commodities can offer diversification,m. Their prices can be highly volatile and are driven by factors such as weather, geopolitics, inventories. A measured allocation may suit investors with the tenure of investment, knowledge and risk capacity for it.

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Q) What are the biggest mistakes retail investors make when entering commodities after a sharp rally or buying a dip during a correction?

A) The common mistakes are chasing a rally for fear of missing out, assuming a fall automatically makes an asset cheap, and investing too much in a single commodity. In futures, leverage can magnify losses, while expiry and rollover costs can affect returns even when the market view is broadly right.

Investors may also mistake a short-lived bounce for a trend reversal or ignore how sharply commodities can respond to news. Decisions should reflect the investment horizon, risk capacity and instrument used, with position sizes kept manageable.

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) Based on investors risk profile, tenure of investment one should consider atleast 10% allocation of gold and silver in their portfolio.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)