Are commodities back in fashion as investors look beyond AI?
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The price for a barrel of crude oil has taken up a lot of column inches this year and for good reason. It’s hit historically high levels and has led to a lot of other things becoming more expensive as a result.
When the Iran conflict started earlier this year, everyone quickly learned where the Strait of Hormuz sat on the map and heard that $100 a barrel was a big alarm bell for the global economy.
Oil is only a part of the story. Throughout 2026, commodities from gold to industrial metals have moved higher. This raises larger questions for investors: are resources a good diversification option for investment portfolios and how are fund managers who invest in this space positioning themselves?
A bastion of diversification
As a sector, it’s increasingly being held up as a bastion of diversification and inflation hedging.
In part this has come from an appetite to diversify away from the all-consuming AI trade. This push has been encompassed by the emerging HALO acronym.
It means ‘Heavy Assets, Low Obsolescence’ and covers stocks and assets which have business models difficult for any AI model to replicate.
This includes commodities alongside grids, pipelines, utilities and long-cycle industrial capacity. This has supported increased interest in the resources space this year, especially among UK investors.
According to data from the London Stock Exchange and Xtrackers, commodity ETFs (Exchange-Traded Funds) are one of the most popular choices for UK investors.
Using these products to invest in commodity prices directly is one of the options open to investors along with investing in the individual companies which drill and dig for commodities and passive and active funds which invest in a basket of these companies.
What’s happened with gold
Gold, which is distinct from other commodities because it has essentially zero industrial-related demand, hit an all-time high at the start of 2026 at $5,600 per ounce, rounding off what was an exceptionally strong 12-month performance. This was linked in part to the ‘Liberation Day’ chaos in markets, central bank buying and weakness in the dollar.
But data from Oxford Economics shows that gold doesn’t always rise in times of crisis.
In the near 30-weeks since the start of the Iran war, the gold price is below where it started, a similar trend to when the Ukraine war broke out and plunged markets into a similar energy crisis.
“The outcomes are actually very mixed. The reason is that the nature of the shock matters. The crisis can initially increase safe haven demand, but it also raises inflation expectations, pushes bond yields higher, or strengthens the US dollar,” Oxford Economics says.
“These effects can work against gold. This is what we’ve seen recently with the Middle East contract. Oil prices have been pushed higher, and we’ve revived inflation concerns. That’s contributed to expectations that the US monetary policy would remain tighter for longer, and this has ultimately weighed on gold”.
Today, the most common exposure is through passive ETFs and ETCs (Exchange Traded Commodity) tracking the gold price.
“This matters for two reasons,” the think tank argues.
“First, ETF flows add another source of demand alongside central banks, particularly when investors are concerned about the financial risks, geopolitics, or the overall macro outlook. But secondly, it also means gold can be more volatile. ETF investors can react much more quickly than central banks to changes in US inflation data, yields, or expectations around the Federal Reserve’s next move. That helps explain why we can remain positive on the medium-term outlook while still expecting fairly significant price weakness.”
“Our forecast for gold is for it to average around $4,515 an ounce in 2026, with prices to close near $4,500 year-end,” they say. This would be $1,100 lower than at the start of the year.
The foothills of a new commodities cycle
BlackRock World Mining Trust is an example of a name which invests in global resources stocks. Co-managers Evy Hambro and Olivia Markham say that the commodities sector is in the “foothills” of the next big commodities cycle, which has been a decade in the making after the 2015-2016 commodities crash.
Back then expansion by resources companies, backed by cheap borrowing costs in the wake of the financial crisis, led to an oversupply of crude oil, iron ore, copper, and aluminum. This coincided with major slowdown in demand from key buyer China, which was going through an economic downturn and therefore had less money to spend.
BlackRock’s Hambro says it’s taken sector participants at least six or seven years to repair their balance sheets and for “management to undo many of the mistakes of the past”.
“This was the ‘repair phase’ which creates the foundation for this next cycle, which probably started about three or four years ago when we’ve seen commodity prices rise again,” Hambro says.
The 2022-23 energy shock laid out the reality of the world’s reliance on certain commodities. Keith Watson and Robert Crayfourd, co-managers of the City Natural Resources Growth and Income trust, formerly CQS Natural Resources Growth and Income observe: “We’re in an environment where we have geopolitical premiums on the most strategic front-end commodities, which are ultimately power related. If you want to retain standards of living, you need the lights on, you need to be able to get from A to B.”
What could go wrong for commodities?
A key determinate of the success for commodities in the short term is healthy economic growth, and despite multiple shocks global growth is holding up, according to the OECD.
It projects global growth of 2.9% in 2026 and 3% in 2027 but warranted that “risks persist”, and the evolution of the conflict in the Middle East “remains highly uncertain, and will continue to pose considerable risks to the baseline projections”.
“Global growth has held up better than expected, but the buffers that absorbed the energy shock are being depleted. Growth is weaker than last year and inflation is rising again,” OECD secretary general Mathias Cormann says.
Stunted or declining economic growth is part of Markham’s worst-case scenario, along with a return to the type of “poor behaviour” her sector saw a decade ago with how companies allocated capital.
Eve Maddock-Jones: Funds and Investment Trust Writer
Eve joined AJ Bell in 2026 as a funds and investment trust writer. She was previously editor at Investment Week, reporting on all major retail investor news, covering funds and investment trusts, ETFs and regulation...