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This commentary is intended for general informational purposes only and does not constitute investment advice or a recommendation.
I was recently in Vancouver speaking at a CAIA event on commodity fundamentals versus price and capital flows, a topic that comes up in almost every conversation we have with investors.
The way investors look at prices and fundamental information is highly varied. Often the same factors are read as bullish by some and bearish by others. Some treat information as new, while others feel that if you can read it, it is already known and priced into markets (we generally believe the latter).
When it comes to economic indicators, this becomes even more complex to interpret and, therefore, to time from an investment perspective. Is the economy strong? Weak? Are we a long way into a cycle, or just beginning one that may run longer than others expect? There are countless examples of price and fundamentals going in seemingly different directions.
When Price and Fundamentals Disagree
Recent examples come to mind in Gold, Silver, and Copper:
Gold: arguably the most complicated commodity. What is it? Commodity, currency, store of value? Yes - all three! Naturally, its drivers are layered and often contradictory.
For example, when inflation hit post COVID, many expected Gold to be the hedge. It wasn't - gold peaked in August 2020, fell about 13% while US inflation climbed to 9%, and didn’t turn higher until late 2022 as we began to disinflate and central banks raised rates aggressively to combat demand-pull inflation (pent up consumer demand for manufactured goods driven by capital injected into the system by central banks). Our trend process did not take the inflation-hedge story on faith. Within the Auspice Broad Commodity Index, Gold was flat for much of the 2021-22 inflation surge, moved long in November 2023 as the trend turned, and moved flat in June 2026.
Chart 1 · Gold
Gold vs. US Inflation
Source: Auspice Investment Operations (back-adjusted continuous futures), U.S. Bureau of Labor Statistics.
Silver: was left behind, with the gold-to-silver ratio hitting 126 in 2020, one of the highest readings on record, and still above 100 as late as April 2025. Yet, it took until mid-2025, well after Gold turned in late 2022, to start moving. The timing didn't make a lot of sense to us, but it took off as money rotated from Gold (more on the Cantillon effect in this blog) and looked very bullish in Q4 2025. Fundamentals arguably remained bullish, with demand obvious as industrial need for solar/AI/electrification was significant. However, just as every person you spoke to was about to shift a significant amount of their portfolio to Silver, it fell on its sword, dropping over 50% from its January peak. The Auspice Broad Commodity Index went long silver in June 2025, months before the fourth-quarter breakout, and moved flat in June 2026 once the trend broke.
Chart 2 · Silver
Silver vs. the Gold-to-Silver Ratio
Source: Auspice Investment Operations (back-adjusted continuous futures).
Copper: while the fundamentals for demand are obviously supportive and long term, its supply is more complicated. As an example, massive producer BHP has raised copper guidance, new projects are ramping up and Chilean production has stabilized. At the same time China demand has softened and exchange inventories climbed this spring to their highest in more than 20 years, with COMEX stocks at a record. It seems like a recipe for price stability, yet Copper is near record highs and we are happily enjoying the ride and long. The Auspice Broad Commodity Index moved long copper in July 2025 as the trend strengthened.
Chart 3 · Copper
Copper vs. Exchange Inventories
Source: Auspice Investment Operations (back-adjusted continuous futures), Bloomberg.
Chart 4 · Price versus fundamentals
When Price Ignored the Fundamentals
Gold, Silver and Copper prices since January 2020 alongside ABCTRI and TIPS, against the story the fundamentals were telling.
Source: Auspice Investment Operations, FRED, Yahoo Finance.
Focusing on the Truths
As a quant manager, we focus on truths. We know price and volatility. These are hard to debate. The understanding that fundamentals may not make perfect timing tools for trading/investing leads to our trend-following strategy - agnostic to market direction, or market. Our systematic discipline allows us to focus on these truths, using a process designed to follow, capture, and exit trends while managing risk.
When an investor asks, "Tim, are you long crude oil because of these fundamental factors (e.g., Iran, the Strait of Hormuz, storage)?" my answer is, "No! If we are long crude, it is because the price trend is up."
Enjoy the Ride
We believe money will keep rotating in commodities for a long time - the Cantillon effect. Commodity demand is strong and is being driven by countless factors and long lead times. Wages and cost-push inflation can not be solved by central banks raising rates, they don't have a lever for that. In fact, this exacerbates the problem at a time when investment capital is scarce for commodity capex. We believe the backdrop remains supportive, but we will let price tell us when it changes.
Enjoy the commodity ride, but it will be hard to predict what's next and how long it lasts. Fundamentals are unlikely to help time these runs, while a disciplined quantitative approach based on price and risk has outperformed commodity beta (long everything) at the index level since 2010 - see last month's blog here.
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