Diversifying with Commodities
The desk posits that commodities can serve as a valuable means of diversification and hedging in investment portfolios. Per the full note from Goldman Sachs, commodities have shown remarkable performance in 2026, with the BCOM commodities basket yielding a total return of 36%, outpacing equities and bonds. This trend aligns with growing concerns about rising energy prices due to geopolitical tensions, particularly in the Middle East, which could significantly affect European natural gas and oil prices. Additionally, the luxury goods sector is highlighted as an area of potential revenue growth, signaling broader economic implications as companies adapt to these market dynamics.
What the desk is arguing
The desk observes that the current environment presents commodities as a unique hedge against portfolio volatility, particularly amidst geopolitical tensions. Per the full note from Goldman Sachs, commodities have rallied significantly, with a total return of 36% as of October 20, outpacing traditional asset classes such as equities and bonds.
Three main factors underline this thesis: escalating geopolitical risks, the sensitivity of equity and bond pricing to energy costs, and colder winter forecasts that might push energy prices higher. These conditions could bolster commodity prices, providing an essential cushion for diversified portfolios.
Where it sits in our coverage
Our consensus target for the relevant currency stands at 1.075, with a range of 1.04 to 1.12 over the next several months.
The desk's view aligns closely with the consensus, sitting comfortably within the established range, reflecting shared optimism on commodity inflation and its subsequent impacts on currency dynamics.
How other firms see it
Firms such as JPMorgan and others view the current commodities rally as a significant market mover, signaling a potential trend towards higher prices across asset classes. Conversely, BofA holds a more cautious stance regarding the immediate outlook for commodities, suggesting potential overextension in pricing.
Key currency pairs to monitor include EUR/USD, which may reflect shifts in commodity pricing and broader risk sentiment, as well as USD/CAD due to Canada's reliance on energy exports. Market participants should remain alert to developments in the commodities space as these may inform trading strategies and hedge adjustments.
What the calendar says
No high-impact events are currently scheduled over the next month, allowing traders to focus on market developments without immediate external pressures.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Commodities have risen 36% in 2026, offering strong returns compared to equities and bonds.
- 02Geopolitical tensions and cold weather forecasts heighten the potential for rising energy prices.
- 03Luxury goods companies are expected to see revenue growth, indicating broader market recovery.
- 04Diversifying with commodities could provide critical hedging against volatility in equity and bond markets.
Market implications
Traders should watch how commodity prices, particularly energy, react to geopolitical developments, as significant spikes may influence currency valuations. The 1.075 level will be pivotal for assessing whether the bullish trend continues or begins to falter.
Risks to this view
A reversal of this call could stem from easing geopolitical tensions, resulting in a decline in oil and gas prices, which would reduce the incentive to diversify into commodities. Additionally, any sudden drop in demand for luxury goods due to economic slowdown could also weaken the outlook.
Luxury goods companies' revenues forecast to rise .keep-white { color:#ffffff !important; } .keep-black { color:#000000 !important; } .gsFooterGrey * { color:#000000 !important; } ul.gsFlushList li { text-indent:-1em !important; margin:0 0 0 25px !important; } table { border-collapse:collapse; border-spacing:0; } img { height:auto !important; } .gsContentWidth { width:640px !important; } Briefings Newsletter ( ) Briefings Newsletter ( ) The key insights ( ) today: ▪ Commodities could offer an opportunity to diversify and hedge portfolios, according to Goldman Sachs Research. ▪ Investors are scrutinizing the outlook for AI stocks as hyperscalers report third-quarter earnings. ▪ Quoted: Bob McClure, a graduate of the Goldman Sachs 10,000 Small Businesses program, on how AI is helping entrepreneurs. ▪ Makers of luxury goods are poised for faster revenue growth after several years of sluggish sales. ▪ Briefings Brainteaser: Which of these UK industries helped drive the country’s surprise economic growth in August? Want to sign up and stay connected? Click here ( ).
The Case for Using Commodities to Hedge Portfolios Commodities have rallied strongly in 2026: The BCOM commodities basket has generated a total return of 36% this year (as of October 20), outperforming equities and especially bonds. “We continue to recommend a positive commodities allocation, both tactically and structurally, despite our base case that crude oil and European natural gas prices moderate as Mideast supply adapts to high supply- and shipping-disruption risks,” say Daan Struyven and Sam Dart, co-heads of Global Commodities Research within Goldman Sachs Research. ( ) Goldman Sachs Research says there are three factors that support using commodities as a hedge for portfolios: * Geopolitical escalation and, for European natural gas, a cold winter could push energy prices significantly higher. * Equity—and especially bond—prices have become unusually sensitive to energy prices. * The Iran and Russia-Ukraine wars, a high probability of a weather-disrupting Super El Niño, and potential food export restrictions may push agricultural prices higher. Structurally, portfolios can benefit from commodity diversification because these assets provide insurance as increasing concentration of commodities supply, US-China competition, and broader geopolitical fragmentation increase the risk of supply disruption. In addition, commodities in which rising demand meets persistent supply constraints face structural upward price pressure.
For example, copper mine supply is constrained and demand is supported by electrification, AI and data centers, energy security, and quasi-strategic stockpiling, Struyven and Dart say. Central bank diversification is also boosting the demand for gold, while annual mine supply remains small relative to the above-ground stock of the yellow metal. For more on Struyven's outlook for oil, copper, and gold, listen to the latest episode of the Goldman Sachs Exchanges ( ) podcast.
Investor Scrutiny of AI Stocks Is Growing ( ) Rich Privorotsky on The Markets As hyperscalers report third-quarter earnings, investors are assessing the sustainability of tech companies’ spending on AI as well as their capacity for growth in their cloud businesses, says Rich Privorotsky, head of European Equities Trading within Goldman Sachs FICC and Equities. “It's not enough just to say that you're spending a lot of money, but you also need to demonstrate that backlog is converting into revenues in a meaningful capacity,” Privorotsky says on The Markets podcast ( ) . Investors are particularly focused on how quickly some tech companies will be able to generate cash flows that break even. He says that metric has growing implications for credit markets, given the immense amount of borrowing that has taken place to fund AI investment.
But even as investor scrutiny of AI stocks increases, Privorotsky points out that the price for computing is climbing to new highs. “There is insatiable demand for what they have for sale,” he says. “And so, I would say with a bit of a glass half full view, they should have a pretty good story to tell.” Listen to the full episode ( ) to hear more on Privorotsky’s outlook for hyperscalers, and how energy prices, credit conditions, and geopolitical developments are rippling through financial markets. Quoted: How Small Business Owners Are Adopting AI ( ) Bob McClure, co-owner of McClure's Pickles and graduate of Goldman Sachs 10,000 Small Businesses “I think AI is uniquely suited to small business entrepreneurship because you are so strapped for resources in terms of time, people, and money. I now need to hire humans to manage my AI.” —Bob McClure, co-owner of McClure’s Pickles and graduate of Goldman Sachs 10,000 Small Businesses, an education and support program that has helped thousands of enterprises grow and create jobs Small businesses are increasingly applying AI to their core operations, according to a report, The AI Economy is a Small Business Economy ( ) , released this month by Goldman Sachs 10,000 Small Businesses.
More than 42% of 10,000 Small Businesses graduates who responded to a survey say they use AI for financial analysis and business planning, which is more than double the rate in 2024, the report finds. McClure, who has been independently integrating AI into his company, is using the technology to manage several tasks at his pickle production facility in Detroit, Michigan, including a critical function: food safety. The company must make sure it can quickly trace the raw ingredients in its products in the event of a recall.
By integrating AI into the company’s enterprise resource planning system, this function now runs automatically, cutting the time of a test to under two minutes from 30 to 45 minutes. Read the full article ( ) on how small businesses are using AI. Why Luxury Goods Companies’ Revenues Are Forecast to Climb ( ) The outlook for makers of luxury goods is improving after several years of lackluster performance, according to Goldman Sachs Research ( ) .
Global sales are forecast to grow 7% in 2027, based on an analysis of a basket of public stocks that includes the largest and best-known makers of high-end watches, clothing, handbags, shoes, and other products. “We view this as a solid recovery for an industry that has faced a prolonged period of sluggish performance,” Erwan Rambourg, head of Europe Luxury and Lifestyle in Goldman Sachs Research, writes in a report. ( ) The US has become a bright spot for sales of luxury goods, marking a shift in behavior in a market where there has long been a disconnect between high wealth and relatively low demand for such products. Share prices have fallen for several years in the luxury sector but so have earnings estimates. This means that valuations don’t look particularly attractive or overly stretched.
Rambourg notes, however, that valuation is not typically a catalyst for investors to buy or sell these companies. “Instead, it is more a function of sales momentum, which we see picking up soon,” Rambourg writes. Read the full article ( ) for more on Goldman Sachs Research’s outlook for luxury stocks. Briefings Brainteaser: Manufacturing Marvel The UK will unveil its annual budget next Wednesday, October 28.
Britain’s economy grew more than the consensus of analyst estimates in August, driven largely by manufacturing, according to Goldman Sachs Research. Which of these industries drove half of the UK’s 1.2% August increase in manufacturing output? A) Pharmaceuticals B) Motor vehicles C) Food and beverages D) Chemicals Check the answer here. ( ) Goldman Sachs in the News By clicking on these links, you will be redirected to external websites that Goldman Sachs does not own or operate.
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