Commodities as an Asset Class: The Complete Deep Dive (150 Years of Data)

0:00 With everything going on in the world, Iran, oil spiking, gold at all-time highs, a lot of people are asking me, should I be buying commodities right now? This is part of my larger series on asset classes as a whole. And I think most people get this wrong because there is a commodity ETF that has averaged negative 10% per year since it launched. Not because a commodity crashed, the commodity actually went up, the fund went down, and millions of people are still buying it. Today, I'm going to show you which commodities actually matter for your portfolio. And most of you already own way more exposure than you might think. We're going to cover oil, gold, copper, natural gas, and the AI connected supply crisis. I think that matters most out of all of them. I'm using over 150 years of return data, most recent institutional research and the actual math on what these things do in your portfolio. This is part four of my complete guide to investing series.

0:50 We've done equities, bonds, and real estate. Now, we're building a portfolio. This one matters. So here's a deal with USO is a United States oil fund. USO does not actually hold barrels of oils. It holds future contracts. These expire every month. The fund has to sell the old contract and by next months. Most of the time the next month's contract costs more than this month's. Think of it like you own a carton of milk and that goes bad every 30 days. You sell it for $4 then a new one costs 410. You do that 12 times a year. Year after year, your money is slowly draining out of the bottom. This is called contango. And it's been a dominant state in the oil market for nearly two decades. Since launch, USO has averaged negative roughly 9.8% per year. Maximum draw down was 97.9% in April 2020 when oil prices went negative for the first time in history. That's significant. They had to do an emergency 8:1 reverse stock split just to keep the fund alive. Wild part of the crash was USO was the most bought stock on Robin Hood. $6 billion of retail money poured in. Short sellers made 286 mil off them. Natural gas, UNNG, is even worse. They've averaged negative 28% per year since inception.

1:58 Here's why this matters is if you hold a well diversified fund, you already hold the biggest energy companies in the world. Those energy companies inside your index fund, they returned about 8.8% annualized over that same period with dividends, with buybacks, with earnings growth. Same underlying commodity, completely different outcomes. The companies grow. The commodity futures ETF just charges you rent through that contango. You do not need to chase after these products. You already hold the best energy companies through your diversified portfolio. Now again zooming way out. Dimson Marsh Stuntton database published a UBS global investment returns yearbook covers 125 years of data across 35 countries. Real return after inflation since 1900. US equities about 6.6% per year. Global equities about 5.2% bonds 1.7.

2:46 Commodities roughly 2% cash.5%. Commodities barely beat cash. The CFA Institute went back even further to 1872 and found commodities have roughly the same volatility as stocks, but the returns approximately 600 basis points lower. 6% less return per year for the same amount of risk. A dollar invested in gold though in 1900 was worth 2.5 bucks in real terms in 2022. That same in US stocks is over 2,000. Looking forward, JP Morgan's 2026 long-term capital market assumptions project broad commodities at about 4.6% nominal versus 6 to 7% for equities. The institutional consensus is clear. Commodities underperform. Why would anyone even touch this asset class in that case? So, two reasons, inflation protection and crisis protection. When inflation spikes unexpectedly, commodities outperform everything. The CFA Institute found that over 10-year horizons, the correlation between commodities and inflation rises by about 6. that is genuinely useful when stocks and bonds are both getting hurt. And when the world's falling apart or feels that way, gold spikes. That brings us to the $5,300 question. Gold has more than doubled in barely two years. It was 2000 not long ago. In 2025, it returned 65%, the strongest annual gain since 1979, over 45 new all-time highs in one year. 2026, it's up another 20% plus. JP Morgan raised their year-end target to 6,300. Upside scenario is $8,000. Central banks are buying at unprecedented levels over 1,000 tons per year for three straight years. The pre2022 average was four to 500 tons, double the historical pace.

4:25 Countries are buying. Poland bought 90 tons in 2024. India quadrupled its buying rate. China added gold for 15 consecutive months. They all are explicitly diversifying away from dollar assets. So gold looks like the greatest investment right now on the planet. But again, let's zoom out. I'm not a hype or chase type guy. The gold's inflation adjusted average since 1980 is about 1,400. It is currently trading about 3.5 times that average. The last time gold got this stretch was 1980. And from 1980 to 2000, gold lost about 6.5% per year after inflation. 20 years straight of losing money, 26 years to break even.

5:02 Warren Buffett's thought experiment still holds. All the gold ever mined forms a cube about 73 feet per side worth about 24.4 four trill at today's current prices. For that same money, you could buy all US crop land, 16 Exxon Mobile, and still have a trillion dollars in cash. One pile generates hundreds of billions of dollars in annual earnings. The other sits there and shines nicely. I value nuance, so let's focus on what gold is good at.

5:30 Sprout's data across seven crisis period shows gold averaging plus 26% while the S&P 500 averaged negative 4.2%. In 2008, gold returned 25% while stocks fell over 50%. Gold is insurance, incredible insurance, and central banks are telling you they agree. Every insurance, though, has a cost. Over full market cycles, businesses compound. Gold does not generate earnings. It does not pay dividends. So, you have to know why you own it. If it's insurance, 5 to 10% of your portfolio, done. If you think it's going to beat stocks over the next 30 years, 150 years of data says that is a losing bet. Okay? So let me give you the short commodity story I think is the most important one right now. Every AI data center needs massive amounts of copper. Microsoft Chicago data center used 2177 tons. That's 27 tons for every megawatt of power. And the new hypers scale facilities up to 50,000 tons per facility. S&P Global's January 2026 study projects copper demand hitting 42 million tons by 2040, a 50% increase.

6:31 The projected shortfall is 10 million tons, nearly a quarter of total demand that cannot be met. Why this is so hard to fix is the average time from discovering a copper deposit to producing copper is about 24 years globally, 32 years in the US. Only three new copper mines have opened in America since 2002. And what makes it different from other commodity stories is copper is less than half a percent of the total data center construction cost. These companies are spending billions per facility. They will pay whatever copper cost. They are not cancelling a10 billion data center because copper went up again. The market knows about this and is flipping. The International Copper Study Group projects 150,000 tons deficit by 2026. JP Morgan rais our long-term target to 5.5 per pound.

7:17 Goldman Sachs sees 15,000 per ton by 2035. Let's tie this all together for Canadians. is if you already own XIC or VCN, you already own 27 to 35% of your portfolio in energy and materials. That's five times more commodity related exposure than the S&P 500. If you own the US total market, you own the biggest mining and energy companies in the world, the companies that will benefit from a copper super cycle from higher energy prices and all of it. They're already there. You don't need to go chasing every individual commodity stock or future ETF to participate. The data is clear over a long run.

7:51 Commodities return less than stocks, less than bonds with the same volatility, the worst risk riskadjusted asset in history. There are pockets of value. Gold is an incredible crisis insurance. Just know what you're paying for it. Copper has a structural supply deficit that is going to take decades to resolve. And commodity future ETFs definitely stay away. For me and for most people, a diversified portfolio is already doing the work. You already hold the best companies in these sectors. You don't need to play these games. Next up is my deep dive on crypto. This one should be interesting. Please like and follow for more content like