At a glance:

  • Strong Commodity Performance: In 2024, commodities like industrial metals, precious metals, agricultural products, and energy have seen double-digit gains, with the Goldman Sachs Commodities Index up +13% YTD and crude oil up +19%.
  • Energy as an Inflation Hedge: Energy stocks are a reliable hedge against inflation, showing resilience and growth potential. Investing in energy can protect portfolios from rising prices.
  • Supply Constraints and Transition: The energy sector faces supply constraints due to underinvestment and reduced refining capacity, while the shift to alternative energy sources boosts demand for metals and natural resources.
  • Long-Term Investment Opportunities: Investing in natural resources offers potential growth, supply-demand benefits, and portfolio diversification, helping safeguard against inflation and position for future economic changes.

In stagflationary times, commodities perform best. Apart from natural gas, of which the United States is an abundant producer, commodities are accelerating higher in 2024. Industrial metals, precious metals, agricultural commodities and energy have rallied double-digit percentages in the first four months of the year. The Goldman Sachs Commodities Index has now returned +13% year-to-date.

Crude oil has rallied +19% year-to-date. Investing in energy as an inflation hedge presents a compelling opportunity for those looking to protect portfolios against the erosive effects of rising prices. Energy stocks have historically served as a reliable hedge against inflation, with the sector demonstrating resilience and potential for growth in inflationary times. The energy sector, particularly oil and gas, has faced challenges in capital investment over the past decade, leading to supply constraints and reduced refining capacity. The ongoing transition away from fossil fuels to alternative energy sources is expected to accelerate long-term demand for metals, mining, and natural resources, creating opportunities for investors in the energy sector. This shift in energy sources could further enhance the value proposition of energy investments as an inflation hedge in our view.

In the years ahead, investing in natural resources should offer the opportunity to capitalise on the sector’s historical performance, supply-demand dynamics, transition to alternative energy sources, resilience, and portfolio diversification benefits. By strategically allocating capital to energy opportunities, investors can potentially safeguard their portfolios against the impact of rising inflation and position themselves for long-term growth in a changing economic landscape.