Commodity Talk | Gold isn't the only story: Why copper, energy and other commodities are gaining portfolio relevance, says Dr. Joseph Thomas

For years, commodities were largely viewed as trading instruments—cyclical bets to be timed rather than assets to be held as part of a long-term portfolio. But that mindset is beginning to change as geopolitics, supply constraints, tariffs, energy transition and the rise of gold as a reserve asset reshape the commodity landscape.

Gold remains the traditional hedge against inflation and uncertainty, but the opportunity set is becoming much broader. Copper, for instance, is gaining structural relevance as demand from electric vehicles, construction, AI and data centres collides with limited investment in new mines and declining ore quality. Energy markets, meanwhile, remain critical for India, where higher crude prices can quickly feed into import costs, inflation and the balance of payments.

For investors, however, commodities come with an important caveat: they remain cyclical and volatile, making position sizing and diversification crucial. While precious metals have traditionally accounted for around 5-10% of portfolios, investors may increasingly need to think about commodities through a broader asset-allocation lens rather than simply chasing the next price rally.


In an interaction with Kshitij Anand of ETMarkets, Dr. Joseph Thomas, Head of Research, Emkay Wealth Management, explains why commodities are emerging as a strategic long-term theme, where copper fits into the AI and energy-transition story, how much gold investors should own, and why rising crude prices could become a bigger concern for Indian markets. Edited Excerpts –

Q) For years, commodities were considered cyclical trading instruments rather than long-term investment assets. Is that changing now?

A) The approach to commodities has changed quite significantly in the last ten years or so. This is due to several factors like supply bottlenecks and in-elasticities, geo-political tensions leading to supply constraints and uncertain flows, the US-led tariff revisions and related uncertainties, and the gradual trend of gold emerging as a reserve asset in place of US Dollar denominated assets.

The energy sector itself id undergoing very rapid and drastic change sat present. Commodities are rising in importance as a strategic long term investment theme due to the changing landscape.

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Q) With equity markets going through its 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) While equities and fixed income will continue to be the most important components of portfolio allocation, precious metals have always had a 5 % to 10 % allocation in the portfolio.

This allocation to precious metals has now gone up, and this is due to higher exposure taken in the portfolios, and also on account of the rise in the prices of precious metals. Investors can look at ETFs and also muti asset class mutual fund schemes for the purpose of investment.

Q) How much commodity exposure is too much? Should a retail investor own individual commodity or take a broader basket approach?

A) The cyclicality in commodity prices is something that is relevant even as of today. The cycles may be shorter or longer, but these cyclicalities make commodities not a perfect fit for portfolios like the traditional asset classes like equity stocks or bonds.

However, the longer-term opportunities which some select commodities may offer on account of structural movements could be captured through specific commodities trades through ETFs or structures which wealth managers and advisors can work out for their clients.

Commodities carry very high risk, and therefore, any exposure to single commodity exposure should not be more than10% of the portfolio.

Q) Copper has hit record highs. Is this a cyclical rally—or the beginning of a structural repricing of the metal? 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) Copper prices have moved up to record highs, and it seems to be well perched at these levels quite comfortably. It is a fact that there is speculative buying happening in the metal and also hedge funds moving in and pushing prices higher.

While these are short term factors, there are very valid long tern factors that create value for copper as a metal even from the futuristic demand perspective.

The structural changes that are visible as of today are the demand for copper not only from EV and housing and construction, but also from AI and data centres where this metal is very essential.

Apart from this there are two things which make the navigation a bit difficult, one of the fact that not much is invested in fresh exploration or mine development, and the quality of the ore that is in supply in the recent years has been quite low. The price at the current level is well supported.

Read more: Global investing is no longer optional for Indian investors—but diversification is more than buying NVIDIA and Apple: Dhiraj Relli

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) Gold is a hedge against inflation or high prices, as also against uncertainties. In addition to this, gold prices based on fundamentals are expected to move up further from the current levels. The standard allocation in a portfolio may be something like 5 % to 10 %.

This may be stretched to 10% to 15 % in case there is a desire to enhance the portfolio exposure based on specific expectations or factors. With rise and fall in the prices the portfolio might require re-allocation, and this may be done in consultation with a financial advisor who is adept in these matters.

Q) At what level of crude prices should Indian equity investors start worrying about inflation, margins and the current account?

A) Crude is the largest component of our import bill and any rise in the crude prices will adversely impact balance of payments position. For all practical purposes in financial calculations there is usually a level of crude prices which is taken as the average level around which the prices may move.

This has been somewhere between US$ 70 and US$ 80, in the last few years. But the recent outbreak of war in the Middle East crude prices have been upwards of US$ 85, and this will push up the import bills by 10 % to 20 % in the coming months.

Domestic prices of fuel and gas have all moved up in the recent months. In addition to the higher crude prices, inflation creeps in through a weak domestic currency as well. The Indian Rupee has depreciated by almost 10 % in the last one year, and this impacts the import costs and makes imports expensive for domestic consumers.

Q) Can commodities protect your portfolio when both stocks and bonds fall?

A) If both stocks and bond fall, and you have to get into commodities to protect portfolio value, then there is something fundamentally wrong with the way the portfolio is designed or set up. Commodities may be able to protect the portfolio value to some extent, and it may be quite negligible.

The equity and bonds part of the portfolio should be managed well, so that the portfolio does well. There are numerous ways in which the portfolio could be insulated from adverse movements.

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