Equity and fixed income markets largely struggled in Q1, with increased geopolitical tensions driving much of the volatility. Commodities, however, were a notable bright spot in a diversified investor’s portfolio. Commodities witnessed a historic surge in the first quarter of 2026, experiencing one of their strongest starts to the year ever with the Bloomberg Commodity Index gaining a whopping 24.41%, its second-highest quarterly gain on record, lagging only Q1 2022. Gains were led by energy, with sharp rallies in oil and gas due to supply shocks from the Iran conflict and closure of the Strait of Hormuz. The S&P GSCI Crude Index rose over 77% in Q1, and crude oil topped $100 a barrel in March, with Brent oil prices jumping over 60% for the month, the largest monthly increase seen in four decades. Gains in agriculture and both precious and industrial metals contributed to commodity returns over the quarter as well. With roughly one-third of the world’s fertilizer supply passing through the Strait of Hormuz, the closure of the critical maritime chokepoint also led to increased prices in the agriculture sector due to fertilizer shortages negatively affecting output. Gold and silver experienced high volatility in the first quarter, but continued their upward trajectory nonetheless, driven mainly by safe-haven demand. Within industrial metals, aluminum and copper saw multi-year highs with geopolitical tensions, supply constraints, and high demand from infrastructure spending and the green energy transition driving price increases.
Commodities extend gains from a strong 2025
We also saw outperformance from commodities in the prior quarter, with the Bloomberg Commodity Index gaining 5.85% in Q4 of 2025, outpacing the S&P 500 Index’s return of 2.66%, as well as the MSCI ACWI Ex USA Index’s 5.05% return. This time, performance was led by a surge in precious metals, with gold and silver rallying on safe-haven demand and expectations for rate cuts. Industrial metals also contributed with gains driven by tight supply constraints, and stimulus-induced demand from China in particular. Industrial demand likewise contributed to silver’s spike in price, due to the metal’s crucial use in solar panels, electric vehicles, and 5G technology. In contrast to the first quarter, energy lagged in the fourth quarter due to oversupply and declines in clean energy investments. For the full year 2025, commodities posted strong results as well, largely defined by the continuous surge in precious metals.
Structural forces driving long-term demand
Beyond the strong performance of commodities as of late, many analysts speculate that we may be entering a new supercycle. Supercycles, which the asset class has been historically prone to, are characterized by long-term periods (10-30 years) of commodity prices rising above long-term averages. Unlike normal commodity cycles, which tend to last 3-5 years and are driven by shorter-term supply and demand imbalances, supercycles are driven by broader structural shifts in global demand, typically affecting a wide range of commodities rather than a single sector. Historical examples of past supercycles include the early 1900s, driven by U.S. industrialization, post-World War II, fueled by reconstruction of Europe and Japan, and the China Boom of the 2000s, primarily driven by the rapid urbanization of China. Analysts argue that a new supercycle could be underway, propelled by the global energy transition and AI infrastructure expansion, increased geopolitical tensions, and supply constraints. Electrification and the green energy transition are driving significant demand for materials such as copper, lithium, nickel and cobalt, while the increased demand for AI and data center infrastructure has driven up demand for copper and aluminum in particular. Increased geopolitical tensions, including the Russia-Ukraine war and the Iran conflict, have disrupted supply chains causing spikes in various commodity prices but have also contributed to a restructuring of global supply chains initially sparked by the pandemic. Rising geopolitical tensions also often increase demand for precious metals. These drivers are only exacerbated by a decade of chronic underinvestment in new production and infrastructure within the energy and mining sectors, on account of falling prices and increased environmental policies. Thus, supply is increasingly unable to meet the rising demand that has been witnessed, leading to many analysts’ projection of a larger structural shift and, ultimately, a sustained upcycle for the asset class.
Diversification, inflation protection, and strategic allocation
Regardless of whether we are entering a new commodity supercycle, however, commodities’ more recent performance highlights the often-disparaged asset class’s historically low correlation to equity and fixed income markets, aptly reminding us of its benefits within a diversified portfolio. Driven by supply and demand for physical goods versus future cash flow expectations and interest rates, commodities often move independently of traditional stocks and bonds, providing a buffer when the latter asset classes struggle. Commodities also act as an effective hedge against inflation, as their prices typically rise with the cost of goods and services during inflationary periods, protecting purchasing power. Outside of these inherent benefits as an asset class, global tensions coupled with increased demand and supply constraints certainly point to a possible reshaping of the landscape of commodity markets. While we would argue that commodities have always been an important component of a diversified portfolio, more volatile and uncertain times suggest their inclusion may now be more beneficial than ever in a fully diversified portfolio moving forward.
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