Goldman Sachs pointed out that the strength of the commodity market in early 2026 can no longer be explained by a single supply-demand logic. The scale of commodities is extremely limited, and even relatively moderate inflows of asset allocation funds are sufficient to cause significant price shocks in the short term. For every one basis point increase in the proportion of gold allocation in U.S. financial portfolios, the price of gold will be pushed up by approximately 1.5%. The current copper price has partially reflected allocation-driven logic, and it is expected that prices may fall back to $11,200 per ton by the fourth quarter of 2026.
In early 2026, commodities continued their strong performance amid high volatility, with Goldman Sachs noting that asset allocation is becoming the dominant variable in commodity pricing.
According to Trend Tracker, Goldman Sachs pointed out in its latest research report that the core driver of this round of market activity is markedly different from the narratives of 'tight supply-demand balance' or 'cyclical recovery' seen over the past decade. Instead, it resembles a 'hard asset rotation' stemming from global investment portfolios.
Goldman Sachs believes that investors actively allocating funds into hard assets alone is sufficient to significantly push up commodity prices in the short term, even keeping prices higher than levels justified by physical fundamentals over the long term. This implies that the pricing logic of the commodity market is shifting from 'spot supply and demand' to 'asset allocation shocks'.
From 'supply-demand pricing' to 'asset allocation pricing'.
Goldman Sachs noted that the strength of the commodity market in early 2026 can no longer be easily explained by a single supply-demand logic.
In discussions with institutional clients, Goldman Sachs found that an increasing amount of capital is reassessing asset allocation based on three concerns: macro policy uncertainty, the return of geopolitical risk premiums, and long-term anxiety about inflation and currency purchasing power.
Against this backdrop, investors are shifting from 'soft assets' like bonds and light-asset stocks to 'hard assets' with tangible properties, which historically have been more defensive in high-inflation and uncertain environments. Commodities represent the most direct and highly liquid form of this shift.
Goldman Sachs emphasized that this process is not a short-term trading phenomenon but rather a change at the level of the asset allocation framework. Once allocation behavior becomes the main theme, commodity prices may deviate from short-term fundamentals for an extended period.
Why can investor allocation of funds significantly push up commodity prices?
Goldman Sachs provided a key explanation: the commodity market is 'too small.'
Compared to the stock and bond markets, the scale of commodities is extremely limited. Research reports show that, measured by the size of outstanding contracts, the global copper market is only a tiny fraction of the stock of U.S. private sector treasury bonds.
Under such a market structure, even relatively moderate inflows from asset allocation funds are sufficient to cause significant price shocks in the short term.
Goldman Sachs further distinguishes between two types of investors: active investors (hedge funds, CTAs, trading-oriented funds) and passive investors (index funds, pensions, and other long-term funds).
Its statistical results indicate that the true driver of price changes is the position adjustments of active funds. When these funds concentrate on adding positions, futures prices rise rapidly, and through futures-spot arbitrage, inventory behavior, and production decisions, they inversely affect the spot market.
Goldman Sachs explicitly stated that as long as the flow of financial capital significantly exceeds industrial hedging and physical flows, it is almost inevitable for prices to be pushed higher in the short term.
Why is the 'hard asset rotation' more favorable for metals than for energy?
Among all commodities, Goldman Sachs believes that precious metals and copper are the direct beneficiaries of this round of hard asset rotation, while energy benefits only temporarily.
The reasons mainly stem from three structural differences.
First, the difference in market size. Except for gold, the market sizes for metals such as silver, platinum, and palladium are extremely small, making the amplification effect of marginal capital inflows on prices particularly pronounced. This is also why these products have shown significantly higher volatility and gains compared to energy since 2025.
Second, differing speeds of supply response. Rising energy prices often quickly stimulate short-cycle supplies such as shale oil, thereby limiting the upside potential of prices; whereas copper and precious metals have highly inelastic supplies. Goldman Sachs pointed out that it takes an average of about 17 years from discovery to production for copper mines, and precious metals supply is similarly highly insensitive to prices.
Third, the difference in storage and futures structure. Energy is more prone to reaching storage limits, and once inventories accumulate, the futures curve shifts to a deep contango, rapidly eroding investment returns; whereas the roll cost of easily storable metals remains constrained over the long term, and precious metals can even completely avoid roll decay through physical ETFs.
This makes metals more 'manageable' and 'sustainable' to hold than energy within an asset allocation framework.
Gold: The Purest Expression of 'Hard Asset Allocation'
In Goldman Sachs' view, gold is the most direct and least supply-constrained hard asset allocation target among all commodities.
Gold supply grows slowly and is almost inelastic to price changes, with above-ground stockpiles far exceeding annual production, making it naturally suited as a neutral asset to hedge against policy uncertainty and currency risks.
Goldman Sachs' baseline forecast for gold in December 2026 is $5,400 per ounce, explicitly noting that the biggest upside risk comes from further private sector allocations into gold.
Its calculations show that for every one basis point increase in the proportion of gold allocation in U.S. financial portfolios, the gold price would rise by approximately 1.5%. Considering that gold ETFs currently account for only about 0.2% of U.S. private financial assets, Goldman Sachs believes that there is still ample room for allocation increases, and this process could be accompanied by increased options trading, amplifying volatility.
Copper and Crude Oil: Prices Already Partially Reflect Allocation Logic
For copper, Goldman Sachs maintains a long-term bullish stance (target price of $15,000 per ton by 2035) but adopts a more cautious view in the short term.
Goldman Sachs believes that the current copper price is already higher than its fair value estimated based on inventory and demand, forecasting a potential decline to $11,200 per ton by the fourth quarter of 2026. However, if the rotation into hard assets continues and funds concentrate on adding positions again, combined with strategic stockpiling by various countries, copper prices still face significant upside risks.
By contrast, Goldman Sachs holds a more conservative view on crude oil. Although capital allocation and geopolitical risks may temporarily push oil prices higher, the faster supply response and a more fragile inventory structure determine that energy is not the optimal long-term vehicle for this cycle of hard asset allocation.
Prices 'staying at elevated levels' may become the norm.
At the end of the research report, Goldman Sachs provided a clear assessment: the rotation of hard assets driven by asset allocation may keep some metal prices above levels explainable by physical fundamentals for an extended period.
In Goldman Sachs’ view, the copper market has already exhibited this characteristic, while precious metals may be the main manifestation in the next phase.
This also implies that if one still interprets this round of commodity market dynamics solely from the perspective of supply and demand, they might underestimate the dominant role financial capital plays in pricing.
What truly changes the commodity market is not just supply and demand but the deeper shift occurring in global asset allocation.
Editor/Doris
