At the beginning of 2026, commodities continued their strong performance amidst high volatility, with Goldman Sachs(GS) stating that asset allocation is now the leading variable driving commodity prices.
According to trading desk insights, Goldman Sachs, in a recent report, highlighted that the core driver of this rally is clearly different from the “supply-demand tightness” or “cyclical recovery” narrative of the past decade. Instead, it appears to be a “hard asset rotation” driven by global investment portfolios.
Goldman Sachs believes that the active reallocation of funds into hard assets is enough to significantly push up commodity prices in the short term, even driving prices above levels that can be explained by physical fundamentals. This means that the pricing logic in the commodity market is shifting from “spot supply-demand” to “asset allocation shock.”
From “Supply-Demand Pricing” to “Asset Allocation Pricing”
Goldman Sachs points out that the strength in commodity markets at the beginning of 2026 is difficult to explain solely through the traditional supply-demand framework.
In conversations with institutional clients, Goldman Sachs found that more and more funds are reevaluating asset allocation based on three key concerns: macroeconomic policy uncertainty, a resurgence of geopolitical risk premiums, and long-term anxiety about inflation and currency purchasing power.
Against this backdrop, investors are shifting from “soft assets” such as bonds and light asset stocks to “hard assets” with physical properties, which historically perform better in high inflation and uncertain environments. Commodities, being the most direct and liquid form of hard assets, are the main expression of this trend.
Goldman Sachs emphasizes that this process is not short-term trading but a structural change in asset allocation. Once this allocation behavior becomes the primary focus, commodity prices may diverge from short-term fundamentals for an extended period.
Why Can the Active Allocation of Funds Significantly Push Commodity Prices Higher?
Goldman Sachs provides a key explanation: commodity markets are “too small.”
Compared to stock and bond markets, the size of the commodity market is extremely limited. According to their report, for example, the global copper market, measured by open interest, is only a small fraction of the U.S. private sector national debt.
In such a market structure, even a relatively moderate inflow of asset allocation funds can cause a significant price shock in the short term.
Goldman Sachs further differentiates between two types of investors: active investors (such as hedge funds, CTAs, and trading funds) and passive investors (such as index funds, pension funds, and other long-term funds).
Their analysis reveals that the primary driver of price changes is the position adjustment by active investors. When these funds concentrate their investments, futures prices rise quickly and impact the spot market through futures-spot arbitrage, inventory behaviors, and production decisions.
Goldman Sachs notes that as long as the flow of financial capital clearly exceeds the hedging and physical flows from the industrial sector, price increases in the short term are almost inevitable.
Why Is “Hard Asset Rotation” More Beneficial for Metals Than Energy?
Among all commodities, Goldman Sachs believes that precious metals and copper are the direct beneficiaries of this hard asset rotation, while energy is more of a short-term beneficiary.
The reasons for this stem from three structural differences.
- Market Size Differences: Apart from gold, metals like silver, platinum, and palladium have extremely small markets, and the effect of marginal fund inflows on their prices is particularly pronounced. This is why these metals have shown significantly higher volatility and price increases than energy since 2025.
- Supply Response Speed: Rising energy prices typically trigger a quick response in short-cycle supply, such as shale oil, which limits the upside for prices. In contrast, copper and precious metals have highly inelastic supply. Goldman Sachs notes that it takes an average of 17 years for copper mines to go from discovery to production, and precious metal supplies are similarly unresponsive to price changes.
- Storage and Futures Structure Differences: Energy is more susceptible to hitting storage limits. Once inventories build up, the futures curve shifts to a deep contango, quickly eroding investment returns. On the other hand, metals, which are easier to store, have limited roll-over costs, and precious metals can even completely avoid roll-over losses through physical ETFs.
This makes metals, under the logic of asset allocation, “easier to hold” and “more durable” than energy.
Gold: The Purest “Hard Asset Allocation Expression”
In Goldman Sachs’ view, gold is the most direct and least supply-constrained hard asset allocation target among all commodities.
Gold’s slow supply growth and almost inelastic price response, along with a large stock of above-ground gold, make it a natural hedge against policy uncertainty and currency risks.
Goldman Sachs’ current baseline forecast for gold in December 2026 is $5,400 per ounce, and they explicitly note that the largest upside risk comes from further private-sector allocations into gold.
Their calculations show that for every 1 basis point increase in gold’s allocation in the U.S. financial asset portfolio, gold prices will rise by about 1.5%. Given that gold ETFs currently account for only about 0.2% of U.S. private financial assets, Goldman Sachs believes that allocation space is far from exhausted, and this process may be accompanied by increased options trading, amplifying volatility.
Copper and Crude Oil: Prices Have Partially Reflected the Allocation Logic
For copper, Goldman Sachs maintains a long-term bullish stance (with a 2035 target price of $15,000 per ton), but they are more cautious in the short term.
Goldman Sachs believes that copper prices are already above their fair value based on inventory and demand calculations, and they expect prices to fall back to $11,200 per ton in Q4 2026. However, if the hard asset rotation continues and funds focus on copper again, coupled with strategic stockpiling by countries, there is still significant upside risk.
In contrast, Goldman Sachs is more cautious about crude oil. While allocation funds and geopolitical risks may push oil prices higher in the short term, the faster supply response and more fragile inventory structure mean that energy is not the best long-term vehicle for this hard asset rotation.
“High-Level Price Stagnation” May Become the Norm
At the end of the report, Goldman Sachs offers a clear assessment: The hard asset rotation driven by asset allocation may cause some metal prices to remain above levels explained by physical fundamentals for a longer time.
Goldman Sachs believes that the copper market already exhibits this characteristic, and precious metals may be the main manifestation in the next phase.
This also means that if one continues to view this commodity rally solely from a supply-demand perspective, they may be underestimating the dominant role of financial capital in pricing.
What is truly transforming the commodity market is not just supply and demand, but the deep shift occurring in global asset allocation.