Rotation from financial assets to solid, tangible assets

Commodities: Outlook 2026

December 2025 | Galena Asset Management

As we approach the final quarter of 2025, we reflect on what has been another remarkable year.

Many of the market dynamics that defined this year were unforeseen. With a new administration taking office at the White House, we anticipated some unpredictable moves, but some events in the world of commodities have been truly historic.

There have been some underlying forces that have manifested themselves during 2025, and that are symptomatic of a reality that is likely to persist as we approach the end of this cycle. A significant amount of liquidity has been injected into the system. The influx of cash during the pandemic has merely accelerated a pattern observed since the global financial crisis (GFC), which is essentially a central bank put – unlimited intervention (“whatever it takes”) to save and keep inflating the financial system. Unlike previous rescue missions, the unwelcome factors in this cycle have been the combination of residual inflation and a complex geopolitical situation that is causing countries to retreat into their own realpolitik.

This is mainly true for developed economies but less so for emerging markets (EMs), which are continually strengthening their economic ties. The “Global South”, as it is often called, has been expanding and growing at levels that are creating a new, underappreciated reality. As an example, the bilateral merchandise trade in USD between India and Brazil has almost doubled over the past decade. With the appropriate trade agreements in place, we could see the trade grow to reach USD 50 billion by 2030, from approximately USD 14 billion in 2025.

Demographic and economic growth for EMs

As developed economies age demographically and economically, EMs are experiencing the opposite trend. Vietnam’s population has been growing by almost 10% in the past decade, while Japan has been declining by 3%. This trend is likely to continue, supporting commodity demand. In sub-Saharan Africa, growth in real terms has improved dramatically, while in the old economies it has been grinding lower. This is mainly attributable to declining inflation. The IMF and World Bank report that countries like Namibia, Tanzania and Uganda (to name a few) are all showing inflation numbers between 3% and 4%.^1,2

The centre of gravity of economic growth has been shifting from the Azores to somewhere in the Indian Ocean this century. If you were to draw a line between Nigeria and China, you would enclose about half of the world’s population around it. More importantly, the percentage of that population earning USD 10,000 per year continues to grow. That is the sweet spot for spending on energy, housing, and white goods, all of which strongly support commodity demand.

The real economic strength of EMs can also be seen in their relatively lower cost of financing and robust performance of their currency. On the flip side, developed economies see their debt soar and economic strength decline, with central banks having to intervene to keep financial markets afloat.

This creates a need for investments to target a debasement strategy, which could, in theory, lead us back to the pre-Bretton Woods system. The recent rally in gold, although potentially exaggerated, is a clear indication that the trust that markets have in developed markets is slowly eroding.

Growing demand for commodities

We will likely see EMs continue to “decouple” into the new year. So, unless we see a global recession, the demand for commodities should find some resilience out of strong EM demand. It will be challenging to extract liquidity from the system. It is therefore likely that, as we approach the end of the cycle, when central banks reach their targeted rate levels, liquidity will shift from risk assets into bonds, and if inflation were to persist, increasingly into commodities and EMs. A decade ago, the price ratio between the Russell 2000 and the Bloomberg Commodity Index (BCOM) was at 13; it is now at 23.³ For the Euro Stoxx 50, the ratio was at 36, and it is now at 53.⁴

It is likely, as was the case in the 2008 recession, that, as markets correct, we will see these ratios decline as money moves into more concrete assets like commodities. On top of that, we could expect a lower USD, which will only fuel the commodity rally.

We are confident that the new year will bring renewed demand for commodities, as investors seek diversification, likely driving inflows into indices like the BCOM. Approaching commodities through a diversified approach, rather than betting on single commodities, should ensure a better risk-weighted return. Commodities are known to be volatile and suffer sharp drawdowns when physical supply and demand realities take the upper hand. As a matter of comparison, the 100-day volatility of the BCOM, at the time of writing, is at 9.96% while the Russell 2000 is at 19%.⁵

For investors seeking capital preservation in an environment of high inflation, the best strategy is to allocate to commodities and prepare for the upcoming cycle. While equities still shine, as assets reflate, so does the tendency to borrow. The upcoming correction is likely to drain liquidity from the system, and for those remaining a rotation will begin, shifting investment from financial assets to solid, tangible assets like commodities.

GAM partners with Galena Asset Management (part of Trafigura Group), who manages the Commodities strategy for GAM Investments.