Commodities in a Strategic Multi-Asset Portfolio: Refreshing Evidence

October 15, 2026 | Lisa O’Connor, Keren Shen

Introduction

Since 2019, commodities have experienced a notable increase in popularity within strategic asset allocation, driven by two significant commodity bull markets: first, the supply-demand shocks following the COVID-19 pandemic, and more recently, heightened geopolitical uncertainty and growing investment related to artificial intelligence. During this period, investors have increasingly looked to commodities as potential sources of return, portfolio diversification, and inflation protection.1

We continue to come back to these three questions:

1. Do commodities provide long-term returns in excess of cash?

2. Do commodities provide diversification and downside protection relative to equities and bonds?

3. Do commodities provide inflation protection?

Our conclusions remain broadly consistent with our earlier findings. While commodities have not historically provided a persistent long-term risk premium, they continue to play an important role in strategic portfolios through their ability to improve portfolio resilience. In particular, gold has demonstrated compelling downside protection characteristics, while energy commodities have consistently provided strong inflation protection. Recent market developments – including increased central bank demand for gold and heightened geopolitical uncertainty – have further strengthened the strategic case for selective commodity exposure.

Long-term returns: ‘Have commodities provided them?’

A long-term risk premium is one of the primary reasons investors hold risky assets in strategic portfolios. Unlike tactical investment opportunities, a strategic risk premium should provide long-term appreciation regardless of when an investor enters the market.

Based on more than 55 years of monthly data, we do not find evidence that commodities provide a statistically significant long-term return in excess of cash. Although broad commodity indices have generated attractive total returns over time, much of those returns have been driven by the cash collateral underlying futures contracts rather than commodity price appreciation itself. After removing the cash component and accounting for the high volatility of commodity markets, excess returns have rarely been statistically significant.

This conclusion remains unchanged even after incorporating the commodity rallies following the COVID-19 supply shock and the more recent strength driven by geopolitical tensions and increased demand for energy and industrial metals. While commodities may outperform over cyclical periods, these episodes have not translated into a persistent strategic risk premium.

Returns of broad commodity indices have been driven by cash collateral underlying futures contracts rather than commodity price appreciation

Commodity total returns have significantly outpaced spot returns, largely due to cash collateral.
Source:

BlackRock, Bloomberg as of March 2026. Time period from 1 February 1970 to 31 March 2026. The figures shown relate to past performance. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. Index performance returns do not reflect any management fees, transaction costs or expenses. Indices are unmanaged and one cannot invest directly in an index.

This distinction is important because it changes the role commodities should play in strategic portfolios. Unlike equities, commodities are not productive assets that generate growing earnings or cash flows; they are inputs into production whose prices fluctuate with changes in supply and demand. Rather than serving as long-term return-generating assets, commodities are best viewed as portfolio tools that provide diversification and protection during specific market environments.

Portfolio diversification: Protecting on the downside

If commodities are not compelling long-term return generators, their strategic value in whole portfolios must come from somewhere else. That value becomes most apparent during periods of market stress.

While commodities generally exhibit low correlations with both stocks and bonds, low correlation alone is not sufficient to justify a strategic allocation. A diversifying asset should improve overall portfolio efficiency by reducing downside risk without materially impairing long-term outcomes. Among all commodity sectors, gold stands out as the strongest candidate to fulfill this role.2

Historical periods of elevated market volatility illustrate gold's defensive characteristics. During high-volatility environments, gold generated an average monthly return of 0.93%, compared with -4.6% for equities, while also outperforming bonds during many stress periods.

Across the five largest S&P 500 drawdowns since 2005, gold outperformed equities in every instance and outperformed bonds in most of those episodes.3

Gold has historically been an effective defensive commodity during market stress

Gold has historically provided strong downside protection during periods of market stress.
Source:

BlackRock, Bloomberg. Time period from 1 January 1990, the inception date of available VIX data, to 31 March 2026. Earliest available data used where applicable.

Gold's defensive characteristics become even clearer when viewed across different market environments. As shown in the charts below, gold gives up relatively little in normal markets while providing meaningful protection during periods of elevated volatility, creating an attractive asymmetric return profile.

Gold has provided asymmetric protection across market regimes

Gold has provided asymmetric protection during periods of elevated market volatility.
Source:

BlackRock, Bloomberg. Time period from 1 January 1990, the inception date of available VIX data, to 31 March 2026.

While the evidence shows that gold has historically provided meaningful downside protection, the more important question for multi-asset investors is whether that translates into better portfolio outcomes. We therefore assessed the impact of introducing gold into a traditional 60/40 portfolio, funded from either bonds or equities.

Gold allocations can improve portfolio efficiency

Moderate gold allocations can improve the efficiency of a traditional 60/40 portfolio.
Source:

BlackRock, Bloomberg. Data from January 1990 to March 2026.

The above results suggest that gold can meaningfully improve the efficiency of a traditional 60/40 portfolio, although the magnitude and nature of the benefit depend on how the allocation is funded. When funded from bonds, moderate gold allocations improve risk-adjusted returns primarily through higher portfolio returns, with relatively little change in risk. When funded from equities, the diversification benefit is more pronounced – portfolio risk declines materially and the Sharpe ratio rises through a 20% gold allocation. In both cases, however, the benefits eventually diminish at higher allocations, underscoring that gold’s greatest value is as a strategic diversifier within a balanced portfolio rather than as a dominant allocation.

Have commodities provided inflation protection?

The strongest strategic case for commodities remains their ability to protect portfolios during periods of elevated inflation.

Recent history has reinforced this point. After decades of relatively stable inflation, the confluence of the COVID-19 pandemic, supply chain disruptions, and geopolitical conflicts produced the highest inflation experienced by many investors in decades.4 While the source of future inflation shocks cannot be predicted, history suggests that elevated inflation periodically reappears and can materially erode long-term purchasing power.

Importantly, inflation protection is not evenly distributed across commodity sectors.

Not all commodities hedge inflation equally

Energy commodities have historically provided the strongest inflation protection.
Source:

BlackRock as of 31 March 2026. Represents sector level performance in high and normal inflation regimes. Statistical significance is defined as significance at the 10% significance level, which represents a 1-tailed t statistic greater than 1.28. Average inflation in high inflation regime: 0.522%. Average inflation in normal inflation state: 0.121%. Earliest available data used where applicable.

As shown above, energy commodities – including crude oil, heating oil and refined petroleum products – have historically provided the strongest inflation protection, reflecting the central role energy prices play in overall inflation. Industrial metals have also demonstrated meaningful inflation sensitivity, while precious metals have provided moderate inflation protection alongside their defensive portfolio characteristics.

Traditional fixed income has generally been a poor inflation hedge, while equities have continued to generate positive long-term returns but have not consistently matched commodity performance during high-inflation regimes. Rather than replacing traditional assets, commodities complement them by protecting against one of the most damaging risks facing long-term investors: unexpected inflation.

One more shining thing

Gold has become an increasingly important component of strategic multi-asset portfolios.

Historically, gold prices were closely linked to real interest rates, with lower real yields generally supporting higher gold prices. While this relationship remains relevant, recent years have demonstrated that additional structural forces are increasingly influencing gold markets.

Growing geopolitical uncertainty, concerns surrounding de-dollarization, persistent central bank purchases, and investor demand for portfolio resilience have all contributed to sustained strength in gold prices. These factors help explain why gold has continued to perform well even during periods when rising real yields might previously have suggested weaker performance.

Gold's drivers have expanded beyond real interest rates

Gold?s performance has increasingly been influenced by factors beyond real interest rates.
Source:

Bloomberg, Federal Reserve Bank as of 31 March 2026. US 10-year real rate before the introduction of TIPS market in US is using backcasts of the TIPS real rates and implied inflation breakeven rates, constructed using the approach described in the Liberty Street Economics blog post "Creating a History of U.S. Inflation Expectations” by Jan Groen and Menno Middeldorp. Only data for the period that lacks actual TIPS rates are reported.

While real yields remain an important driver, central bank buying, geopolitical fragmentation and demand for portfolio resilience have become increasingly influential in explaining gold's performance.

Rather than indicating irrational pricing, recent gold performance reflects a broader evolution in gold's role within global portfolios. Gold has increasingly become both a hedge against financial market volatility and a store of value during periods of geopolitical fragmentation and macroeconomic uncertainty. These characteristics reinforce its strategic importance as a diversifying asset rather than a traditional return-seeking investment.

The below rolling-regression model is designed to quantify the incremental impact of newly identified factors on gold return, with coefficients estimated and fitted returns calculated for the most recent period. Importantly, the purpose of this model is not to forecast future gold returns, but rather to evaluate the explanatory power of selected variables in relation to observed gold returns

Gold's drivers have evolved beyond real interest rates

The drivers of gold returns have broadened and evolved over time.
Source:

BlackRock, Bloomberg, as of 1 January 1980 to 31 March 2026. Earliest available data used where applicable.

Our findings continue to show that commodities should not be included in strategic portfolios for the purpose of generating long-term excess returns. That conclusion, however, should not be mistaken for a lack of strategic value. Gold has consistently provided meaningful downside protection during periods of market stress and offers an additional source of diversification in portfolios. Commodities can also serve as an inflation hedge. For investors seeking targeted outcomes, direct allocations to gold or energy may provide the most efficient exposures. Investors seeking broader resilience across multiple macroeconomic scenarios may benefit from diversified commodity indices. Ultimately, the characteristics that commodities can provide in whole portfolios remain highly relevant in today's investment landscape.

Source

1 World Bank Group, Commodity Markets Outlook, April 2026. The figures shown relate to past performance. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

2 Diversification and asset allocation may not fully protect you from market risk.

3 The elevated market volatility periods are defined as VIX>20 and monthly VIX change > 10%. in selected high-vol periods since 1990, in total we have 63 months are identified as high-vol periods. We then calculate the average monthly return for Gold, US equity and US Bond, which gives us 0.93% for Gold and -4.6% for equities. For the S&P 500 Stress periods since 2005, we selected the worst 5 performed SP500 months, and we found Gold outperformed SP500 in all 5. and outperform Bond in 3 out of 5.

4 Federal Reserve Board, Pandemic and War Inflation: Lessons from the International Experience, Finance and Economics Discussion Series, 2025.

Lisa.OConnor_blackrock.com
Lisa O'Connor
Global Head of Model Portfolio Solutions, Co-CIO for Global Solutions, Multi-Asset Strategies & Solutions
Keren.Shen_blackrock.com
Keren Shen
Model Portfolio Solutions Researcher, Multi-Asset Strategies & Solutions

1. Basu, Devraj and Joëlle Miffre, “Capturing the Risk Premium of Commodity futures: The role of hedging pressure”. Journal of Banking & Finance, 2013. https://doi.org/10.1016/j.jbankfin.2013.02.031g
2. Gorton, Gary B. and Rouwenhorst, K. Geert, Facts and Fantasies About Commodity Futures (February 28, 2005). Yale ICF Working Paper No. 04-20. Available at SSRN: https://ssrn.com/abstract=560042
3. Levine, Ari and Ooi, Yao Hua and Richardson, Matthew P. and Sasseville, Caroline, Commodities for the Long Run (October 20, 2016). Available at SSRN: https://ssrn.com/abstract=2856435 or http://dx.doi.org/10.2139/ssrn.2856435
4. Erb, Claude B. and Harvey, Campbell R., Conquering Misperceptions about Commodity Futures Investing (May 22, 2016). Financial Analysts Journal, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2645444 or http://dx.doi.org/10.2139/ssrn.2645444
5. Erb, Claude B. and Harvey, Campbell R., The Tactical and Strategic Value of Commodity Futures (March 2005). NBER Working Paper No. w11222. Available at SSRN: http://ssrn.com/abstract=693083
6. Bhardwaj, Geetesh and Gorton, Gary B. and Rouwenhorst, K. Geert, Facts and Fantasies About Commodity Futures Ten Years Later (May 25, 2015). Available at SSRN: http://ssrn.com/abstract=2610772 or http://dx.doi.org/10.2139/ssrn.2610772
7. Kolb, Robert W. February 1992, Is normal backwardation normal? The Journal of Futures Marekt, Vol 12 No. 1.

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This material provides general advice only and does not take into account your individual objectives, financial situation, needs or circumstances. Before making any investment decision, you should therefore assess whether the material is appropriate for you and obtain financial advice tailored to you having regard to your individual objectives, financial situation, needs and circumstances. Refer to BIMAL’s Financial Services Guide on its website for more information. This material is not a financial product recommendation or an offer or solicitation with respect to the purchase or sale of any financial product in any jurisdiction.

Information provided is for illustrative and informational purposes and is subject to change. It has not been approved by any regulator.

This material is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. BIMAL is a part of the global BlackRock Group which comprises of financial product issuers and investment managers around the world. BIMAL is the issuer of financial products and acts as an investment manager in Australia. BIMAL does not offer financial products to persons in New Zealand who are retail investors (as that term is defined in the Financial Markets Conduct Act 2013 (FMCA)). This material does not constitute or relate to such an offer. To the extent that this material does constitute or relate to such an offer of financial products, the offer is only made to, and capable of acceptance by, persons in New Zealand who are wholesale investors (as that term is defined in the FMCA).

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This information should not be relied upon as research, investment advice, or a recommendation regarding any products, strategies, or any security in particular. This material is strictly for illustrative, educational, or informational purposes and is subject to change.

Please ask your clients to consider the investment objective, risk, charge and expense of the funds carefully before investing. The prospectus and, if available, the summary prospectus contain this and other information about the fund and are available, along with information on other BlackRock funds, by calling 800-882-0052 or at www.blackrock.com. The prospectus and, if available, the summary prospectus should be read carefully before investing.

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