Keyword: how commodities hedge against inflation
A couple of years ago, I was standing in the grocery store staring at a box of cereal, shocked that it had jumped two dollars in price. I brushed it off at first — but then gas prices rose, rent ticked up, and my favorite coffee brand cost nearly double what it used to.
That’s when I knew inflation wasn’t just an economic headline. It was real, and it was eating into my wallet — and my investments. The stock market was shaky, my savings were losing value, and I felt stuck.
So I started researching ways to protect my money and came across something interesting: commodities. More specifically, I learned about how commodities hedge against inflation, and I decided to give them a shot.
Here’s how it went — the good, the surprising, and what I’d recommend to anyone curious about using commodities as an inflation hedge.
Why Inflation Is a Problem for Investors
Before we get into commodities, let’s talk about inflation for a second.
When inflation rises, the purchasing power of your money drops. That means:
A dollar buys less than it used to
Cash sitting in a savings account loses value over time
Some investments, especially bonds and growth stocks, may underperform
This is exactly what I experienced. My emergency fund felt smaller every month, and even though my portfolio was mostly in stocks, it wasn’t keeping up with rising costs.
That’s when I started looking for assets that move with inflation instead of against it.
Why Commodities Are Considered a Hedge
Commodities — like oil, gold, wheat, and copper — are real, physical goods, and their prices often rise when inflation kicks in.
Here’s why they make a good hedge:
- They’re tied to the cost of living: When fuel, food, and materials get more expensive, commodity prices typically rise too.
- They react to supply and demand: Inflation often comes from increased demand or disrupted supply — both of which push commodity prices up.
- They’re not tied to corporate earnings: Unlike stocks, commodities don’t care about profit margins or earnings reports.
That last point hit home for me. While tech companies were struggling with inflation and higher interest rates, commodity prices were climbing — and investors were taking notice.
My First Step: Learning the Basics
I’ll admit, commodities felt a little intimidating at first. Futures contracts? Spot prices? Roll yields? It was a lot.
So I kept it simple. I read up on the basics and realized I didn’t need to trade futures or fill my pantry with barrels of oil. I could invest in commodity ETFs through my regular brokerage account.
Here are a few I looked into:
- GLD – SPDR Gold Shares
- DBC – Invesco DB Commodity Index Tracking Fund
- GSG – iShares S\&P GSCI Commodity-Indexed Trust
- USO – United States Oil Fund
Gold: My First Inflation Hedge
Gold is the classic inflation hedge. It doesn’t pay dividends, but it tends to hold value (or even rise) when inflation is high or the dollar weakens.
So I bought into GLD, a gold ETF, with a small portion of my portfolio — around 5%. I didn’t expect it to make me rich, but I wanted a bit of stability while everything else felt uncertain.
What I noticed:
During periods of rising inflation, gold was steady or slowly ticking up.
It balanced out some of the volatility in my stock-heavy portfolio.
Just seeing it there gave me peace of mind (seriously).
Diversifying into Broader Commodities
After seeing how gold worked, I decided to try a broader play. That’s when I added DBC, which includes a basket of commodities like oil, natural gas, corn, and metals.
Why I liked it:
It gave me exposure to multiple sectors — energy, agriculture, metals — all in one fund.
I didn’t have to guess which commodity would perform best.
It moved independently of my other investments.
When inflation started climbing fast, DBC really started to show results. Oil prices were spiking, food costs were up, and my DBC holdings rose accordingly.
Was it perfectly smooth? Nope. Some weeks it dipped, other weeks it jumped. But overall, it gave me the inflation protection I was looking for.
How Commodities Fit Into My Portfolio
Let me be clear: I didn’t go all-in on commodities. They’re volatile, unpredictable, and can underperform in certain market conditions. But as a hedge? They worked.
My breakdown looked something like this:
- 60% Stocks (a mix of growth and value, U.S. and international)
- 20% Bonds (mostly U.S. Treasuries and a few corporate bonds)
- 10% Commodities (via ETFs like GLD and DBC)
- 10% Cash and real estate (REITs and an emergency fund)
That 10% in commodities was small but mighty. It helped cushion my portfolio during inflation-heavy periods and gave me exposure to assets moving differently from the stock market.
What I Learned Along the Way
1. Commodities are a hedge — not a growth engine
They won’t always outperform stocks, and they’re not designed to. Their job is to **preserve value** and reduce the impact of inflation. That’s exactly what they did for me.
2. They’re volatile — and that’s okay
Commodity prices can swing based on weather, politics, supply issues, and more. Don’t let short-term movements spook you. If you’re using them as a hedge, you’re in it for protection, not day trading.
3. Start small and simple
You don’t need to be a futures trader. ETFs make it incredibly easy to get exposure with just a few clicks. Start with gold or a broad-based fund and learn as you go.
4. They’re great in inflationary environments — but less useful during stable times
During low inflation, commodities may underperform. That’s okay. Like insurance, you don’t need it all the time, but it’s good to have when the storms roll in.
Final Thoughts: Should You Use Commodities to Hedge Inflation?
If you’re wondering how commodities hedge against inflation, the short answer is: they rise in value when inflation drives up the cost of goods. For me, adding a slice of commodities to my portfolio was one of the smartest decisions I made during a very uncertain time.
They gave me:
A buffer against rising prices
More balance in my portfolio
A greater understanding of how the global economy moves
If you’re worried about inflation eating into your savings or investments, consider exploring commodities. Start small, learn the landscape, and use them as a tool — not a magic bullet.
You don’t need to be an expert to make them work for you. I wasn’t. But they still helped me protect what I’d worked hard to build.
Next Article To Read: Why I Chose to Invest (Not Trade) in Commodities