Here's what gold has in common with some other commodities - and what it doesn't

By Jules Rimmer

The difficulty of adjusting gold production rapidly sustains upward pressure on prices

Demand for gold has now spread to other strategically important commodity markets

There are a few reasons behind the recent gold highs, but some things separate it from many of its commodity counterparts. And, according to a team from Goldman Sachs, one of the most important factors is supply - or rather, lack thereof.

Simply put, with other commodities, supply is more flexible and producers can respond to price signals. That's not the case with gold.

In bull markets, gold producers cannot simply mine more. Supply is fairly constant.

The team of Lina Thomas, Daan Struyven and Samantha Dart noted there is an "insurance-type demand" that gold and other commodities share. This trend has been amplified in recent years as central banks have sought to hedge geopolitical and financial risks or diversify their reserves by accumulating gold.

China's response to oil price shocks, for example, has led to increased coal production and renewables to compensate for its lack of oil-production capacity, the Goldman team noted, calling it "an energy-security strategy" and expecting it to continue. China also has been building its food production, and the team predicted that its food self-sufficiency would be in the mid-90% range by the middle of the next decade - a massive jump from the low-60% levels.

India has also been rebuilding its internal food production. Goldman noted that the country has "rebuilt its rice buffers to the upper end of their historical range - now covering roughly 103 days of domestic production."

These food-production changes can be linked to both the war in Ukraine and supply-chain shocks caused by COVID-19. In response, the global marketplace for many commodities has turned into regional ones or even national ones. The team noted that the U.S., for example, has stockpiled copper, pulling much of it from the global market and causing prices to rise. While gold prices may continue to rise, the Goldman team predicted more differentiated returns across commodity markets, stemming from these new dynamics. Supplies of strategically important commodities are becoming increasingly concentrated.

The supply of strategically important commodities is increasingly concentrated

The increased use of commodities as "tools of leverage" raises disruption risk. For Goldman Sachs analysts, it underscores the insurance value that commodities can provide within portfolios.

-Jules Rimmer

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02-11-26 0921ET