Introduction to Commodities Investing
Become a more intelligent investor by understanding the fundamentals of this fascinating market.
Module 3. Profit from a Crisis
Learning Objectives:
Learn how to better protect your buying power during periods of high inflation.
Understand how to profit from very adverse market conditions.
Become aware of how commodities have historically performed compared to stocks and bonds.
Investing During Inflation: Commodities, Stocks and Bonds
Commodities have long been seen as a hedge against inflation and a potential stabiliser in diversified portfolios. When the cost of goods and services rises, the value of money erodes—each unit of currency buys less. This reduction in purchasing power affects consumers, businesses, and investors alike.
To combat inflation, central banks often raise interest rates. While this may slow inflation, it tends to place downward pressure on both stocks and bonds. Higher interest rates make borrowing more expensive, reduce consumer and business spending, and ultimately weigh on corporate profits. Investors may shift out of equities and into yield-bearing alternatives, further pushing down stock prices.
Bonds, in particular, tend to suffer in inflationary environments. Their fixed coupon payments lose real value as inflation rises, and newly issued bonds with higher interest rates make existing ones less attractive. This creates an inverse relationship between interest rates and bond prices.
Commodities, on the other hand, can benefit directly or indirectly from inflation. If inflation is driven by rising commodity prices—such as oil, copper, or wheat—then owning these assets can preserve or even grow purchasing power. Even when commodities are not the root cause of inflation, investors often flock to them for perceived stability. Gold, in particular, is widely regarded as a “safe haven” during inflationary periods and economic crises.
A landmark study by Gorton and Rouwenhorst (2004) titled Facts and Fantasies about Commodity Futures found that a diversified basket of commodity futures historically delivered returns and risk-adjusted performance comparable to equities, while maintaining low or even negative correlations to both stocks and bonds. More recent data during the 2020-2023 inflation surge confirmed that energy and agriculture commodities often outperformed traditional asset classes during turbulent times.
Gold and Gold Mining Stocks
Gold has been used as a store of value for thousands of years. In modern finance, it often plays the role of “wealth insurance.” During market crises, investors frequently shift funds into gold for its stability and historical value.
For example, during the 2008 Global Financial Crisis, gold initially fell from around $1,000/oz to $700/oz, but then rallied to over $1,900/oz by 2011. More recently, in the wake of the COVID-19 pandemic and amid geopolitical tensions, gold surpassed $2,000/oz multiple times between 2020 and 2024. And by mid-2025, gold was trading well above $3,000 per ounce, reinforcing its status as a resilient store of value during times of uncertainty.
Gold can be a rather polarising topic of investment. Some argue that since it produces no income (no dividends or coupon payments), it lags behind productive assets like equities or bonds over the long run. However, it has been valued by civilisations for thousands of years and its historical role during economic dislocations makes it a powerful diversification tool.
Gold mining stocks offer another way to gain exposure, though they tend to be more volatile than physical gold itself. These companies may outperform when gold prices rise sharply, but they also carry additional risks related to business operations, geopolitical factors, labour disputes, and mine management.
Diversification and the Case for Focus
Diversification—spreading your investments across multiple asset classes—is a time-tested way to reduce portfolio volatility. Many financial advisers recommend it as a foundational principle. By owning a mix of stocks, bonds, commodities, and perhaps real estate, investors can limit the impact of any single asset’s downturn.
With that in mind, legendary commodities investor, Jim Rogers, has said that diversification will not make you rich. He has endorsed putting all your eggs in one basket (or at least very few baskets) and then watching that basket very closely. But he is also very quick to warn that if you get this choice of basket wrong, you could lose everything!
Rogers goes on to stress that you must only invest in what you understand. Markets don’t move in a straight line, and without knowledge and understanding, unexpected price movements can cause emotional decisions and costly mistakes.
Market Crashes and Investor Psychology
Many investors love the opportunities that market corrections or crashes present. Sharp declines in asset prices can be frightening, but they often create the best opportunities for prepared investors.
Warren Buffett: “Be fearful when others are greedy, and greedy only when others are fearful.”
While easier said than done, this mindset can help disciplined investors turn crises into long-term wealth. But it requires:
The ability to remain calm when others panic.
A clear understanding of how different asset classes behave under stress.
A thorough understanding of your investment.
A willingness to act contrary to prevailing sentiment.
Commodities can behave very differently from stocks or bonds during crises. For example, oil prices briefly turned negative in April 2020 due to storage constraints. Meanwhile, gold and agricultural products surged as investors sought stability and supply chains were disrupted.
Understanding why these movements occur—not just that they occur—is what separates speculation from intelligent investing. Study price cycles, but more importantly, study the forces behind them. Always do your homework!
Take Action
Continuing with the commodity you selected in Module 1, begin building a solid understanding of its price movements and fundamentals. You need to not only know what happened, but also why it happened.
1) Research the historical performance of your commodity. Investigate how its price behaved during the following market crises:
The 2000 Dot-Com Crash
The 2008 Global Financial Crisis
The 2020 COVID-19 Market Shock
The 2022–2023 Inflation and Rate-Hiking Cycle, and into 2024 and 2025
2) Compare it against other asset classes, such as stock indices (e.g. S&P 500), bond markets or bond ETFs, and other commodities.
3) Investigate the underlying drivers. Ask yourself:
What caused the rally or decline during each period? Was the price movement due to supply constraints, demand surges, geopolitical risks, inflation?
Was the price movement influenced by interest rate decisions, inflation reports, or other major economic data or central bank policies?
Your goal is to link the price movements to specific causes. This is critical for learning how to anticipate similar moves in the future.
4) Identify the top producers of your chosen commodity. Research how their economies were performing during each crisis period, focussing on:
Stock market trends
Currency strength
Property valuations
Interest rates and inflation
Political or economic instability
Understanding the macroeconomic environment of producer nations can reveal hidden factors influencing price behaviour. It will also help you identify new and various ways in which you can take advantage of commodity price movements.