Goldman Sachs noted that global capital is accelerating its shift from financial assets to hard assets such as commodities in search of safe havens, forming a 'hard asset rotation.' This trend is expected to keep prices of metals like copper and gold at high levels for the long term, potentially even surpassing the support provided by physical supply and demand fundamentals. Due to the smaller size of the metal market, limited supply elasticity, and easier storage, the marginal impact of capital inflows is particularly significant. This structural reallocation could lead to a long-term premium for some commodities.
Against the backdrop of increasing volatility in global equity markets, investors are accelerating the shift of funds from financial assets to hard assets such as commodities in search of safe havens. The Goldman Sachs Commodities Research team pointed out that this 'hard asset rotation' may keep the prices of various metals at elevated levels for an extended period, potentially exceeding the levels supported by their physical supply and demand fundamentals.
Goldman Sachs analysts stated that client conversations indicate that the rising macro and geopolitical risks have driven investors’ willingness to diversify into hard assets, becoming a key driver of this commodity market trend. Hard assets typically refer to tangible physical assets such as commodities, real estate, and infrastructure, whose value preservation attributes in inflationary and uncertain environments are drawing capital away from traditional financial assets like stocks and bonds.
The research indicates that precious metals and copper have greater upside potential than oil and natural gas in this rotation. Goldman Sachs maintained its target price for gold at $5,400 per ounce by December 2026, suggesting that private-sector asset diversification needs could provide upward momentum. Copper prices also benefit from the hard asset rotation and strategic reserve demand, providing a foundation for price increases.
Following the rebound in the metals market in 2025, most commodities continued their strong yet volatile performance into early 2026. Goldman Sachs analysis suggests that ongoing adjustments in investor asset allocation may keep prices of certain metals, such as copper, at elevated levels for the long term, creating a structural premium.
Price-driving mechanism of the hard asset rotation
Goldman Sachs research highlights a close correlation between investor positioning behavior and commodity prices during the rotation toward hard assets in broader asset allocation. Given the relatively smaller size of the commodities market, capital inflows can significantly push up prices in the short term.
The bank’s analysis suggests that precious metals and copper have greater price increase potential compared to oil and natural gas in this allocation shift, based on three structural reasons. First is the difference in market depth. The metals market is much smaller than the energy market, meaning equal capital inflows have a stronger marginal impact on prices.
Second is the difference in supply elasticity. Rising energy prices can quickly spur a supply response from shale oil, while copper mines are constrained by long-cycle projects, and the supply constraints for precious metals are even more rigid.
Lastly, there is the issue of storage and roll-over costs. Energy storage capacity is relatively limited, and futures roll-over costs can surge dramatically; whereas metals are easier to store, and physically-backed precious metal ETFs do not involve roll-over costs, making them more suitable for long-term allocation funds to hold.
Specific Impacts on Gold, Copper, and Oil
Goldman Sachs, through its quantitative model, points out that the current rotation into hard assets is driving differentiated impacts on the prices of various commodities. Specifically, there are significant structural differences in price sensitivity for gold, copper, and oil due to capital inflows.
Regarding gold, the model estimates that for every one basis point (i.e., 0.01%) increase in the allocation of gold in U.S. financial portfolios, the price of gold will rise by approximately 1.5%. Based on this, Goldman Sachs believes that the private sector’s ongoing demand for diversification may introduce upside risks to its target gold price of $5,400 per ounce by December 2026.
The copper market is also sensitive to capital flows. A one-standard-deviation increase (approximately 10 percentage points) in the proportion of net managed funds relative to open interest positions can push up copper prices by about 6.9% in the short term. However, over time (for example, after one year), the impact diminishes to around 4.2%, as scrap copper supply increases and demand potentially slows. Goldman Sachs notes that the sustained rotation into hard assets and strategic reserve requirements could collectively constitute an upside risk for copper price forecasts.
In comparison, the oil market exhibits greater short-term elasticity to capital inflows. A one-standard-deviation increase (approximately 2.7 percentage points) in the proportion of net managed funds could drive oil prices up by about 10% in the short term, with the increase easing to 7.5% after one year. Goldman Sachs emphasizes that the combination of hard asset rotation and geopolitical supply disruption risks could further elevate oil price forecasts.
Market Outlook of "Higher for Longer"
Goldman Sachs analysis indicates that the current global rotation of funds into hard assets such as commodities could push some metal prices, represented by copper, to trade above levels determined by physical supply and demand fundamentals over the long term, creating a structural premium. This phenomenon holds significant implications for asset allocation: amid heightened stock market volatility and pressure on high-valuation sectors like technology stocks, the hedging attributes and inflation-protection function of commodities continue to attract inflows of allocation funds.
The bank stresses that this price support driven by investment demand has transcended the realm of short-term trading to become a medium-term pricing variable in the commodities market. However, this capital-driven upward trend also carries associated risks. The price foundation is more reliant on market sentiment and macroeconomic expectations, and if risk appetite reverses or uncertainties ease, capital outflows could lead to rapid corrections detached from fundamentals.
Editor/Stephen
