Hard asset rotation! Goldman Sachs: This round of commodity price increases resembles an "asset allocation shock" rather than a simple supply and demand story

At the beginning of 2026, commodities continued to show strength amid high volatility, with Goldman Sachs believing that asset allocation is becoming the dominant variable for commodity prices.

According to the Wind Trading Desk, Goldman Sachs pointed out in its latest research report that the core driving force of this round of market trends is clearly different from the "supply-demand tight balance" or "cyclical recovery" narratives of the past decade, and resembles more of a "hard asset rotation from global investment portfolios."

Goldman Sachs believes that the active allocation of funds by investors into hard assets is sufficient to significantly push up commodity prices in the short term, even causing prices to remain above levels that can be explained by physical fundamentals in the long term. This means that the pricing logic in the commodity market is shifting from "spot supply and demand" to "asset allocation shocks."

Transitioning from "Supply-Demand Pricing" to "Asset Allocation Pricing"

Goldman Sachs pointed out that the strength of the commodity market at the beginning of 2026 is difficult to explain using a single supply-demand logic.

In communications with institutional clients, Goldman Sachs found that an increasing amount of funds are reassessing asset allocation based on three types of concerns: uncertainty in macro policies, the return of geopolitical risk premiums, and long-term anxiety about inflation and purchasing power of currency.

Against this backdrop, investors are beginning to shift from "soft assets" such as bonds and light asset stocks to "hard assets" with physical attributes, which historically have been more defensive in high inflation and uncertain environments, with commodities being the most direct and liquid expression.

Goldman Sachs emphasizes that this process is not a short-term trade, but a change at the asset allocation framework level. Once allocation behavior becomes the main line, commodity prices may deviate from short-term fundamentals for a longer period.

Why Can Investor Fund Allocation Significantly Push Up Commodity Prices?

The first key explanation given by Goldman Sachs is: the commodity market is "too small."

Compared to the stock and bond markets, the scale of commodities is extremely limited. Research shows that, measured by open interest, the global copper market is only a tiny fraction of the U.S. private sector national debt stock.

In such a market structure, even relatively moderate inflows of asset allocation funds can cause significant price shocks in the short term.

Goldman Sachs further distinguishes between two types of investors: active investors (hedge funds, CTAs, trading funds) and passive investors (index funds, pension funds, and other long-term funds).

Their statistical results show that it is the position adjustments of active funds that truly drive price changes. When these funds concentrate their positions, futures prices rise rapidly and, through futures-spot arbitrage, inventory behavior, and production decisions, they inversely affect the spot market.

Goldman Sachs bluntly states that as long as the flow of financial funds significantly exceeds industrial hedging and physical flows, price increases in the short term are almost inevitable.

Why Is "Hard Asset Rotation" More Beneficial for Metals Than for Energy?

Among all commodities, Goldman Sachs believes that precious metals and copper are the more direct beneficiaries of this round of hard asset rotation, while energy is more of a temporary beneficiary.

The reasons mainly stem from three structural differences.

First, the difference in market scale. Aside from gold, the markets for silver, platinum, palladium, and other metals are extremely small, making the amplification effect of marginal fund inflows on prices particularly evident. This is also why these varieties have experienced volatility and increases significantly higher than energy since 2025 Second, the speed of supply response differs. Rising energy prices often quickly stimulate short-cycle supplies like shale oil, thus limiting the upward price potential; while the supply of copper and precious metals is highly rigid. Goldman Sachs points out that it takes an average of about 17 years from the discovery of a copper mine to production, and the supply of precious metals is similarly insensitive to price.

Third, differences in storage and futures structure. Energy is more likely to reach storage limits; once inventories accumulate, the futures curve turns into a deep contango, quickly eroding investment returns; whereas the roll costs of easily stored metals are long-term constrained, and precious metals can even completely avoid roll losses through physical ETFs.

This means that, under asset allocation logic, metals are "easier to hold" and "more durable" than energy.

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 is slow and almost inelastic to price, with above-ground stocks far exceeding annual production, making it naturally suitable as a neutral asset to hedge against policy uncertainty and currency risk.

Goldman Sachs currently has a benchmark forecast for gold at $5,400 per ounce for December 2026 and clearly states that the biggest upside risk comes from the private sector further allocating gold.

Their calculations show that for every 1 basis point increase in the allocation of gold in the U.S. financial asset portfolio, gold prices will be pushed up by about 1.5%. Considering that the current share of gold ETFs in U.S. private financial assets is still only about 0.2%, Goldman Sachs believes that the allocation space is far from exhausted, and this process may be accompanied by increased options trading, amplifying volatility.

Copper and Crude Oil: Prices Partially Reflect Allocation Logic

For copper, Goldman Sachs maintains a long-term bullish stance (with a target price of $15,000 per ton by 2035), but is more cautious in the short term.

Goldman Sachs believes that current copper prices are already above the fair value estimated based on inventory and demand, and expects prices to potentially fall to $11,200 per ton in the fourth quarter of 2026. However, if the rotation of hard assets continues and funds concentrate on increasing positions again, coupled with strategic stockpiling by various countries, there remains significant upside risk for copper prices.

In contrast, Goldman Sachs is more conservative in its judgment on crude oil. Although allocation funds and geopolitical risks may temporarily push up oil prices, the faster supply response and more fragile inventory structure determine that energy is not the best long-term vehicle for this round of hard asset allocation.

"High Price Stagnation" May Become the Norm

At the end of the research report, Goldman Sachs provides a clear judgment: the hard asset rotation driven by asset allocation may cause some metal prices to remain above levels that can be explained by physical fundamentals for a longer time.

In Goldman Sachs' view, the current copper market has already shown this characteristic, while precious metals may be the main manifestation in the next phase.

This also means that if one only understands this round of commodity market trends from the supply and demand perspective, they may underestimate the dominant role of financial capital in pricing.

What truly changes the commodity market is not just supply and demand, but the deep shift in global asset allocation that is occurring