ETMarkets Smart Talk | Gold for ballast, silver for growth; avoid industrial commodities in core portfolios: Saish Sawant

Retail investors should generally avoid treating broad commodities as a standalone asset class due to high volatility, negative roll yields, and a lack of cash flow.

At the same time, crude oil has surged on geopolitical tensions, while copper continues to navigate a complex mix of AI-led demand, tariff uncertainty and supply disruptions.

So, how should investors approach commodities in an increasingly divergent market?

In this edition of ETMarkets Smart Talk, Saish Sawant, Research Analyst–Commodities at Emkay Global Financial Services, breaks down the contrasting moves across gold, crude and copper.

He explains why gold could continue to serve as portfolio ballast, why silver offers a higher-beta growth opportunity, and why retail investors may be better off avoiding industrial commodities as part of their core portfolio.

We also discuss the outlook for gold after its sharp correction, the impact of interest rates and geopolitics on commodity prices, and the biggest mistakes investors should avoid when chasing a rally or buying the dip. Edited Excerpts –

Q) October has been a month of sharp divergence across commodities. What has been the biggest driver behind the contrasting moves in gold, crude oil and copper?

A) The common thread is the Middle East conflict, but each market is pricing the policy response to it more than the conflict itself. Crude, up about 12% in October after gaining 4.6% in September, is a direct supply shock.

Brent surged above $117 last week, its highest since April, after a wave of Iranian attacks on tankers around Hormuz and an attack on a Saudi refinery. At least 18 vessels have come under fire in two weeks, Gulf tanker freight is at record levels, and US crude inventories have drawn four weeks running.

Gold, down about 3% in October after falling 6.5% in September, pays for the same shock through rates. Dearer oil feeds energy-led inflation, which pushes the Fed toward a December hike and supports the dollar, raising the opportunity cost of holding a non-yielding asset.

Gold has fallen from a January record near $5,600 to around $4,000, heading for its biggest annual drop in 11 years. The old rule that war means buying gold fails when the war is inflationary and the central bank is tightening. Copper, up about 0.5% for the month, is the quiet one. It is driven less by geopolitics than by the AI-capex trade, US tariff expectations and Chilean supply disruptions.

Q) Gold has fallen below the $4,000-an-ounce mark, while crude has rallied sharply. Is this primarily an inflation story, a geopolitical story or a shift in investor positioning?

A) Gold dipped below $4,000 last Friday, its lowest since mid-July, but trades around $4,026 today, so it is hovering near the level rather than decisively below it. This is primarily an inflation-to-rates story, with positioning as the amplifier.

Hot energy-driven CPI and PPI prints moved the rate curve, and gold sells off when real yields and the dollar rise. Geopolitics is the source of the oil shock but is not giving gold its usual safe-haven bid, which is why it sits near three-month lows.

Positioning explains why the move looks stretched: gold slid toward $4,000 alongside the tech and AI equity selloff, which points to liquidation to cover losses elsewhere. There are offsetting supports.

Chinese net gold imports via Hong Kong rose more than 28% in September to a five-month high, suggesting price-sensitive physical buyers are stepping in near $4,000. Peace-talk headlines are also pulling oil, and with it hike expectations, lower, which would help bullion.

Q) Copper has weakened despite its long-term role in electrification and infrastructure. Is the recent correction a buying opportunity or a warning that global industrial demand is slowing?

A) Neither, cleanly. Copper is up about 0.5% in October at around $14,400 a ton, after touching multi-week lows and recovering. This looks like consolidation after a record-setting run, not a breakdown.

The price is supported more by policy than by demand. Metal flowed into US warehouses ahead of a possible refined-copper tariff, and markets are now pricing some chance it is shelved before the midterms. The Commerce proposal is 15% from January 2027 and 30% from 2028, pending a presidential decision.

The Comex premium over LME has already narrowed, and a decision against a tariff could collapse Comex and drag LME lower as surplus US stocks return. This affects the US-versus-rest-of-world spread and warehouse flows more than global consumption.

On demand, the signals are mixed. AI and grid spending remain a long-cycle positive, and China’s Q3 GDP (4.5%) and September industrial production (+5.5%) both beat forecasts, though industrial profit growth is slowing.

Supply is the firmer part of the story: global mine output is down 1.1% in the first half, Chilean output hit its lowest August level since 2011, and strikes and weather have disrupted Escondida, Centinela and El Teniente.

Q) How do higher interest rates typically affect gold, crude oil and copper differently? Why shouldn’t investors treat all three commodities as one asset class?

A) The three respond to rates through different channels. Gold is the most direct rate trade. It pays no yield, so it re-prices with real rates and the dollar, and higher rates raise the opportunity cost of holding it.

It is priced like a financial asset. Crude has the weakest link to rates. It is a physical commodity where supply risk and geopolitics usually overwhelm rate effects, and this month the causality ran backwards: oil drove the rate outlook, which then pressured gold.

Copper sits in between, since higher rates hurt through slower growth, tighter credit and the cost of carrying inventory, but tariffs and mine disruptions can easily override that. It is a cyclical metal with a structural electrification story. October shows how far their drivers can diverge: crude rose about 12%, gold fell about 3% and copper was flat. Treating them as one “commodities” allocation hides this.

Each exposure should be sized to its own driver: gold as a real-rate and diversification hedge, crude as a geopolitical and supply-risk position, and copper as a long-duration play on electrification and supply scarcity.

Q) If the Fed holds rates in October but signals tighter policy ahead, could gold remain under pressure even without an immediate rate hike?

A) Yes, and that is largely what has happened. The Fed held at 3.75%–4% in a 10–2 vote, with Lisa Cook and Beth Hammack dissenting for a hike, and Fed Chair Warsh did little to challenge expectations of a December increase.

Futures price a December hike and further tightening into 2027, which keeps real yields and the dollar supportive. A December hike is already largely priced at about 78%; the greater risk is a signal of more hikes than the market expects.

Warsh is also cutting rate-setting meetings to seven next year and six in 2028, so each meeting carries more weight, and market moves around those dates could be larger.

For gold to break higher it needs a change in the path, not just a pause. The most likely triggers are a soft PCE print today, easing oil on diplomatic progress that lowers hike expectations, or an AI-driven growth scare, though that last one cuts both ways because it can also prompt liquidation selling. Without one of these, I expect gold to stay in the range $4,000/oz - $4,200/oz.

Q) Gold has corrected sharply in October after a strong run. What would convince you that this is a healthy correction rather than the beginning of a prolonged downtrend?

A) Following a historic multi-quarter run that saw gold scale unprecedented peaks (~$5,595/oz in January 2026), a sharp correction is typical market mechanics.

To convince an institutional desk that this is a healthy bull-market reset rather than a secular downtrend, we look for three distinct mainstays: continued structural central bank reserve buying establishing a firm price floor, a macroeconomic backdrop of persistent fiscal deficits and stubborn inflation despite rate hikes, and the flushing of speculative leverage while physical ETP holdings strong.

Q) Should retail investors consider commodities as a separate allocation within a diversified portfolio, or should most investors stick to equities, bonds and gold?

A) Retail investors should generally avoid treating broad commodities as a standalone asset class due to high volatility, negative roll yields, and a lack of cash flow.

Instead, portfolios should centre on a disciplined framework of Equities for growth, Bonds for income, and Gold which uniquely functions as a financial asset and crisis hedge, as portfolio ballast. Industrial and cyclical commodities are better left to sophisticated investors via a small satellite sleeve.

Q) What are the biggest mistakes retail investors make when entering commodities after a sharp rally or buying a dip during a correction?

A) During market extremes, retail investors frequently stumble by chasing momentum at multi month peaks, confusing tactical FOMO with strategic asset allocation, and ignoring the hidden cost of carry or instrument structure.

These behavioural errors typically result in buying at peak cyclical, panic-selling during routine corrections, and suffering severe net-return drag from storage costs, or expense ratios severely impairs long-term net returns.

Q) Finally, if an investor is building a portfolio for the next five years, what role would you assign to gold, silver and industrial commodities and what would you avoid?

A) For a five-year horizon, a resilient portfolio should assign distinct asset roles: Gold (8%–12%) serves as core portfolio ballast and tail-risk insurance to protect purchasing power; Silver (0% - 3%) acts as a high-beta industrial hybrid for minor, conservative growth exposure; and Industrial Commodities (0%) should be avoided entirely in core retail allocations due to acute cyclical volatility and overlap with global equities.