Gold still belongs in portfolios, but AI and the green transition are creating bigger opportunities elsewhere in commodities – FTSE Russell

In an interview with Kitco News, Indrani De, Head of Global Investment Research at FTSE Russell, said the investment case for gold has not fundamentally changed, with the precious metal continuing to benefit from structural central bank demand, geopolitical uncertainty, and the ongoing trend toward de-dollarization. However, those bullish forces are increasingly being offset by rising real interest rates as the Federal Reserve maintains its tightening bias.

"Gold really has this one tailwind and one headwind," De said. "Obviously, it's the traditional inflation hedge and uncertainty hedge, and because of de-dollarization and central banks buying more gold, that really continues. Against that headwind of real yield going up."

Those competing forces leave gold in a relatively balanced position, she said.

While De still sees gold as an essential strategic allocation, she argued that the broader commodity complex is entering a new secular phase driven by two powerful structural themes: artificial intelligence and the global shift toward energy security.

"If you look broadly in the commodity space, there's so much else that's happening that's gathering a lot more attention for commodity investors," she said. "We are obviously in the AI transition. We are definitely in the midst of the green transition."

Although oil prices have benefited from the war with Iran, De explained that the Middle East energy crisis has fundamentally altered the investment narrative surrounding renewable energy. Rather than being viewed solely through an environmental lens, the transition is increasingly becoming an issue of national security and economic competitiveness.

"The Strait of Hormuz situation has shown us that energy security is economic security," she said. "In the short run, countries will find every bit of fossil fuel they can, but on a longer-term basis, it provides even more tailwinds for the green transition."

That thesis forms the backbone of FTSE Russell's latest research, which argues that the Iran conflict has accelerated a structural shift toward electrification, renewable energy, and domestic energy production rather than merely creating another temporary spike in fossil fuel demand. The firm said the current energy shock is likely to reinforce investment in solar power, batteries, electric vehicles, power grids, and energy efficiency as governments seek to reduce dependence on imported oil and natural gas.

The research notes that clean energy investment already runs at roughly twice the level of fossil fuel investment globally, while falling costs for solar panels and batteries have dramatically improved the economics of electrification. At the same time, electric vehicles are steadily displacing global oil demand, suggesting that today's geopolitical crisis could accelerate a transition that was already underway.

Those trends have already begun to show up in financial markets.

"The FTSE Environmental Opportunities Index is having one of its best runs so far," De said. "Year-to-date, it was ahead of the FTSE All-World Index by almost eight-and-a-half percentage points. That tells you how much tailwind there is for this green transition on a permanent basis."

FTSE Russell's latest quarterly outlook also highlights companies tied to the energy transition as one of its highest-conviction investment themes, noting that environmental opportunity stocks have outperformed the broader global equity market by 8.5 percentage points this year. The report also points to miners and refiners of transition metals as likely beneficiaries as countries accelerate investment in renewable infrastructure.

For commodity investors, that increasingly shifts attention toward industrial metals.

"Those trends obviously lead to demand for certain kinds of commodities," De said. "Again, for the AI transition, the secular forces of AI transition and green transition are leading to more attention to those kinds of commodities."

While not explicitly endorsing any specific commodity, De said that, in this environment, copper and silver stand to benefit from the same long-term forces supporting electrification.

The firm's research also points to exploding AI infrastructure spending as another powerful source of commodity demand. FTSE Russell estimates the five largest U.S. hyperscalers will spend more than $600 billion on AI infrastructure this year, with annual investment expected to exceed $900 billion by 2028. That spending continues to support demand for semiconductors, electrical equipment, data centers, and the industrial metals needed to build them.

Despite her enthusiasm for industrial commodities, De stressed that gold continues to serve a unique role in diversified portfolios.

She noted that persistent geopolitical uncertainty surrounding the Middle East, changing Federal Reserve policy under new Chair Kevin Warsh, and heightened volatility across interest-rate markets all argue for maintaining defensive portfolio allocations.

"There are at least three different sources of high volatility right there," she said, referring to geopolitical risks, shifting inflation expectations, and uncertainty surrounding the Fed's evolving policy framework.

Still, she warned that markets may be underestimating those risks by assuming a rapid normalization following the reopening of the Strait of Hormuz.

"The fact that financial markets are pricing in such a benign outlook is possibly a bigger source of risk and volatility at this point,” she said.

For gold investors, she said these factors create a familiar balancing act.

Rising real yields and higher opportunity costs may limit bullion's upside over the near term. Yet persistent geopolitical uncertainty, elevated central bank buying, and continued reserve diversification should keep gold firmly established as an essential monetary asset within diversified portfolios.