Khandelwal said electrification, surging power demand, artificial-intelligence infrastructure spending, persistent supply constraints, and years of underinvestment are converging to create a perfect storm for a sustained upcycle in hard assets.

Commodities can generate returns while protecting portfolios against energy disruptions and renewed inflation, he said. That defensive role becomes valuable when the toxic mixture starts hitting stocks and bonds. 

Here's how the UBS strategist framed the trade:

Position for commodity upside

We believe commodities can provide both a structural source of return and portfolio protection in scenarios where higher inflation expectations challenge equities and bonds. While commodities have historically offered valuable diversification benefits due to their relatively low correlation with traditional asset classes, we also see a supportive longer-term backdrop driven by electrification, rising power demand, AI infrastructure investment, and supply constraints across several markets. In our view, investors should maintain diversified exposure across precious metals, energy, industrial metals, and agriculture to capture a broad range of opportunities. Given fast-shifting leadership within commodity markets, we think an actively managed approach can help investors navigate the commodity upcycle.

Gold

Gold has resumed its upward trend as US inflation concerns have ebbed, and markets have reined in expectations for near-term Federal Reserve rate hikes. Looking ahead, however, we believe central bank demand, continued diversification away from the US dollar, and global debt concerns will remain important structural supports. For investors with substantial gains following the strong rally over the past year, higher prices may provide an opportunity to rebalance some exposure into other commodity sectors. We continue to view gold as a useful strategic diversifier, and we remain constructive on gold prices over the next 12 months.

Energy

The ongoing conflict between the US and Iran highlights the fluid nature of geopolitical events and how they can impact energy. With crude supply remaining restricted and both sides facing constraints in reaching a compromise, uncertainty over how quickly shipping conditions and production will normalize is likely to keep energy markets sensitive. In our view, energy exposure can help protect against lingering supply uncertainty and inflation spillovers, while robust demand supports a constructive medium-term outlook.

Industrial metals

Industrial metals, such as copper, have benefited from secular demand drivers such as electrification, the energy transition, and the ongoing global buildout of AI infrastructure. Prices have remained resilient despite periodic global economic growth worries. While factors like tariffs and trade policy risks may keep prices volatile in the near term, demand trends remain constructive for the asset class over the longer term. In copper specifically, supply constraints and projected market deficits reinforce our positive longer-term outlook.