Broad commodity exposure vs silver and gold funds: which is best?

For much of the past year, gold has been the go-to asset class to protect against the disruptive instincts of the current US administration. It did its job through Liberation Day, through Nicolas Maduro’s abduction in Venezuela, through the Greenland fiasco and renewed tariff threats. It also dragged its precious metal peers up with it, with strong returns for silver and palladium.

However, the Iranian crisis has showed its fallibility. In the immediate aftermath of the US/Israeli attacks, both gold and silver saw their prices notably decline. For many investors, it’s been a little like discovering that their car insurance only applies on weekdays. At the low points, gold had fallen from around $5,200 to around $4,426, while sliver slipped from around $93.80 to around $64. As of 27 April, both had been clawing back losses but remain below their levels ahead of the crisis intensifying with the gold price standing at $4,703 and silver priced at $75.50.  

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Looking at it more closely, there were some clues that gold might not work as well in this type of crisis. The first problem is that energy shocks create inflation, which in turn pushes interest rates higher. Michael Browne, global investment strategist at the Franklin Templeton Institute, says: “The market moved from expecting rate cuts, to expecting rate rises. Higher interest rates always act as a negative for precious metal prices.”

Gold and other precious metals do not generate an income, therefore the opportunity cost of holding them rises as rates rise. While gold has occasionally acted as a hedge against inflation, it is more a guard against the devaluing of money – say in the case of hyper inflation – than for the type of inflation created by an energy shock.

David Coombs, head of multi-asset investment at Rathbones, says a strengthening dollar has also played a role in gold’s weakness. “Gold is inversely correlated to the dollar. Everyone was positioned for a weaker dollar during the Trump presidency. The conflict created a complete reversal. With the whole market anticipating lower US rates, they had to look at what might happen if rates were higher.” The dollar strengthened against most currencies in the early stages of the war.

Then there was a price problem. Browne says gold had become a hugely popular trade. The price is still up 41.4% over one year, even with the recent falls. Silver had gained even more at 127.5%. A lot of retail money had gone into both gold and silver, chasing recent gains, and those investors can be jittery and unpredictable when momentum starts to turn.

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Rob Burdett, head of multi-manager at Nedgroup Investments, noted:“After an extraordinary rally in 2025, the market was perhaps with hindsight ‘overcrowded’ in the short term, leading to the liquidation of positions to lock in profits. Also, high stock market volatility has forced the more speculative market participants to sell liquid assets - including gold and silver - to cover margin calls and losses in equity portfolios. This has turned gold into a ‘piggy bank’ for raising cash during the crisis rather than a hedge against it.”

Silver was knocked by worries over global growth. Tom McGrath, chief investment officer at 8AM Global, says silver has a meaningful industrial demand component, with uses in solar panels, the automotive industry and electronics: “When investors start worrying about slower growth at the same time as they worry about inflation, it can get pulled in both directions.”

Diversified commodities?

The question for investors from here, is whether gold and silver are still an effective hedge, or whether they should turn to other commodities to shore up their portfolios in difficult moments. Coombs points out that nothing is a perfect hedge in all market conditions. He points out: “There is no such thing as a safe haven. There are only certain safe havens for certain events. There is no single asset class that offers all-weather protection.”

In this particular crisis, energy companies have been the most effective diversification strategy. BP (LSE:BP.) is up around 31% for the year to date (to 27 April), while Shell (LSE:SHEL) is up 18.8%. Oil exchange-traded funds (ETFs) – either based directly on the oil price, or on exploration and production companies – have also been strong. For direct oil exposure options include WisdomTree Brent Crude Oil ETC GBP (LSE:BRNG) and WisdomTree WTI Crude Oil ETC (LSE:CRUD).

However, Browne says that using them as a permanent hedge may involve holding them through some periods when they look unexciting. At the start of the year, it seemed that the oil market was in a state of over-supply and prices were stable at around $60. Nevertheless, investors burned by the recent turmoil may consider that a price worth paying.

Browne says that other areas to look at might be aluminium or copper. “These were already on something of a tear and this crisis has accelerated it.” He says for both these metals, an existing structural growth story combined with supply constraints around the war to push up prices. “If investors are looking for an offset commodity, they should make sure that there are good fundamentals in the first place and then in an event like this, it will act as a hedge.”

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Burdett and McGrath prefer a broader approach. Burdett says: “The legacy of the conflict is likely further persistence of inflation, which does make a broad basket of commodities more attractive than perhaps was the case before the conflict.”

The L&G All Commodities ETF GBP (LSE:BCOG), for example, is up 15.5% over the last three months. Other diversified commodity options include WisdomTree Enhanced Commodity ETF - USD Acc GBP (LSE:WCOB) and BlackRock World Mining Trust Ord (LSE:BRWM). An alternative option to gain exposure to the likes of copper, nickel, lithium, aluminium and rare earth minerals is through the abrdn Future Raw Materials ETF USD Acc GBP (LSE:ARAW).

McGrath says if a shock is centered on oil, shipping disruption and the knock-on effects on food and input costs, then broader resource exposure may provide a more effective hedge. He notes: “We have seen that in some of the portfolios we manage, where holdings such as JPM Natural Resources C Net Acc have worked well because they brought in direct oil and resource sensitivity at exactly the right moment.

“Equally, something like Barings Global Agriculture I GBP gives access to a different but related part of the inflation story through food and supply-chain pressures. So, going forward, if volatility persists, I do think there is a sensible argument that investors should consider a more diversified commodity approach.”

Holding gold

However, there is still an argument to hold gold and silver. Both metals have regained some ground recently, probably in response to renewed weakness in the dollar and some moderating of interest rate expectations. Browne says gold is always useful for moments of peak crisis, when investors believe Armageddon is close.

Robert Minter, director of ETF Strategies at Aberdeen, says there are still structural supports for the gold price, not least from central banks. He explains: “The reasons behind central banks buying gold have only been reinforced over the last month. Chiefly, debt to GDP levels of developed market countries are only getting more extreme, and the US continues to use the US dollar as an arm of foreign policy. We expect central bank demand to continue at the historically high yearly rate of 2022-25. This is supportive of higher prices.”

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Then there is the correlation factor. Gold may not have provided protection in this crisis, but it is still negatively correlated to stock markets. A stock market crash is still a possibility, with sentiment fragile, and markets currently pricing in relatively short-lived disruption. Minter says: “A 5% sell-off has occurred on average every 1.1 years since 1928, while a 10% sell-off occurs every 1.5 years, and the average mid-term election sell-off is 19%. At the moment, it is as if the energy crisis never happened, which of course should negatively affect stock prices much more than it has so far.” 

He points out that gold has one of the lowest correlations of any major asset over time. “Correlations between asset classes are not constant and can change over short periods of time, but gold’s correlation to the S&P 500 is 0.015, and to the MSCI World Equity Index it is 0.102 - anything under 0.8 correlation is generally considered uncorrelated and these are dramatically lower.” 

Markets are still fragile, and do not yet appear to be pricing in a prolonged conflict or significant energy price shock. Hedging remains important. The crisis has shown the limitations of gold as a universal hedge, but it still has a place. Nevertheless, supplementing gold exposure with broader commodity exposure may prove more effective.