A new commodity supercycle may be approaching, and investors should not overlook the asset class as a portfolio diversifier, says Evy Hambro, co-manager of the BlackRock World Mining Fund.
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Commodities can help protect portfolios when inflation and interest rates are rising.
"If you're listening to the bond market today, it's telling you to diversify," Evy Hambro, BlackRock's global head of thematic and sector investing, tells BFIA Talks. The podcast is available on all major platforms and YouTube.
Bond yields have surged in recent weeks - a familiar warning that something is wrong. Government deficits keep expanding, while spending continues unabated.
Interest rates are climbing. The stock market, meanwhile, is trading at record highs.
"There's an alarm going off, and people aren't listening"
"Government bonds are sending a clear warning that things aren't healthy," he said. "Governments are having to finance larger annual deficits, and that is putting heavy pressure on the financial system."
Higher bond yields follow naturally: investors want greater returns when lending to governments feels riskier.
Governments rarely default on debt as readily as businesses or other private borrowers. More often, they let inflation erode what that debt is actually worth.
"How do you protect yourself, at least to some degree, against that?" Hambro asks. "For me, the answer is real assets - things such as infrastructure, commodities, and gold. Over time, they've helped preserve purchasing power."
Are commodities set to thrive?
Hambro believes commodities may be approaching a new supercycle. In earlier cycles, prices first climbed when demand outpaced supply, then declined once investment brought enough new supply to meet it.
Infrastructure across the developing world increasingly needs replacing, pushing demand for industrial metals higher. The rapid spread of artificial intelligence (AI) is adding to that pressure.
"We've entered a period of exceptionally strong demand growth," Hambro says, driven by enormous investment in technology, AI, electrification and related areas. That surge, he adds, has "exposed the fragility and maturity of existing infrastructure in the developed world."
Copper has felt this shift sharply. Because it is central to electrification, its price has climbed nearly 17% so far this year.
Access to these resources has become fiercely contested. Their strategic value has pushed nations to treat supply as a national security concern.
"There's a bit of a war over access to commodities as a result," says Hambro.
China's effective monopolisation of rare earth minerals - critical components in much of modern technology - shows what that conflict looks like.
"Last year, President Trump went to China to discuss tariffs. He came back saying he couldn't impose them because China threatened to cut off rare-earth supplies," Hambro says. "The U.S. automakers told him, Whatever you do, don't let that supply disappear.' Without it, production stops."
How much gold to hold, and why
In Hambros's view, portfolios should hold about 10% in gold, alongside other real assets.
He likens that allocation to insurance. If gold underperforms in a given year, top it back up by selling some of the other assets that did better.
It can feel like throwing money away, much like paying for insurance and never filing a claim.
"But when you don't have insurance, a setback can hurt badly," Hambro says.
Gold, at least, has a long record of preserving purchasing power. The familiar claim is that one ounce has bought a men's suit for 2,000 years.
When inflation runs high and other investments lose value, gold can help protect your portfolio.
About the podcast
BFIA Talks explores practical ways to manage money, invest wisely and build wealth. Editors James Mackreides, James Mackreides and James Mackreides speak with influential guests, including CEOs, entrepreneurs, economists and fund managers, about achieving financial success.
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