Synopsis:

In light of rising tariff risks, elevated inflation expectations, and stretched equity/credit valuations, Goldman Sachs outlines the strategic case for commodity investing. Far from being just a play on rare "supercycles," commodities can provide attractive long-term returns, portfolio diversification, and superior inflation protection — particularly during late-cycle phases or supply shocks when both equities and bonds tend to falter.

Key Points:

1️⃣ Returns Go Beyond Inflation 📈

• Commodity futures offer a "risk premium" for bearing price volatility.
• This premium supports positive long-term returns beyond just tracking inflation.

2️⃣ Powerful Diversification Benefits 🔀

• Commodities have low correlation to traditional assets in normal times.
• Correlation turns negative when most needed — during late cycles or disruptions.
• Direct commodity exposure is more diversifying than commodity producer equities, which track stock indices.

3️⃣ Superior Inflation Hedge vs. TIPS and REITs 💹

• Broad commodity indices often outperform TIPS and REITs during inflationary periods.
• Commodities are more directly tied to price pressures and less sensitive to rising interest rates.

Conclusion:

Goldman Sachs emphasizes that commodities offer a compelling long-term investment case, particularly in high-inflation, uncertain macro environments. They not only outperform traditional inflation hedges like TIPS and REITs but also enhance diversification and deliver an added return premium, making them a valuable strategic allocation in diversified portfolios.