Inflation and Commodities: Real-Asset Hedges

Understanding Inflation: The Enemy of Purchasing Power

Before examining how commodities hedge against inflation, it helps to understand precisely what inflation is, how it is measured in India, and why it poses such a persistent threat to investors.

Inflation is the rate at which the general level of prices for goods and services rises over a given period, resulting in a corresponding fall in the purchasing power of money. If inflation is running at 6% per year and your fixed deposit earns 7%, your real return is only about 1%. If inflation rises to 8% while your FD rate stays at 7%, you are actually losing real purchasing power despite earning a positive nominal return.

In India, inflation is measured primarily through two indices. The Consumer Price Index (CPI) tracks the change in prices of a basket of goods and services consumed by urban and rural households. It is the headline inflation metric watched by the RBI's Monetary Policy Committee (MPC) when setting the benchmark repo rate. The Wholesale Price Index (WPI) measures price changes at the producer or wholesale level and tends to be more sensitive to commodity price movements because it has a higher weightage for primary articles (including food commodities) and manufactured goods whose input costs are directly linked to raw materials.

The composition of these indices reveals why commodities matter so much to Indian inflation. Food and beverages alone account for roughly 45% of the CPI basket. Fuel and light represent another meaningful share. This means that when global crude oil prices rise or when domestic agricultural output is disrupted by an erratic monsoon, the impact flows directly and quickly into headline inflation numbers that affect every Indian household.

Inflation can be broadly categorised into demand-pull inflation, which occurs when aggregate demand outpaces supply, and cost-push inflation, which arises when input costs - particularly energy and raw materials - increase. India is frequently subject to cost-push inflation because it is a large net importer of crude oil and edible oils. When the price of Brent crude surges on global markets, Indian fuel prices follow, logistics costs rise, and this feeds through to virtually every product in the economy.

The RBI's inflation targeting framework, introduced through an amendment to the RBI Act in 2016, mandates keeping CPI inflation at 4% with a tolerance band of +/- 2%. When inflation breaches the upper tolerance of 6% for three consecutive quarters, the RBI is required to explain the deviation to the government. This framework has made inflation management a central pillar of Indian macroeconomic policy, influencing interest rates, rupee exchange rates, and therefore the returns available across asset classes.

For investors, the practical implication is clear. A period of sustained above-target inflation reduces the real value of fixed-income portfolios, cash savings and even equities in certain sectors. Assets that physically participate in the price rise - commodities - become relatively more attractive precisely when inflation is highest. This counter-cyclical characteristic is the foundation of commodity-based inflation hedging.

Why Commodities Are Natural Inflation Hedges

The argument for commodities as inflation hedges rests on a fundamental economic relationship: commodities are not just assets whose prices happen to correlate with inflation - they are, to a significant degree, the cause of inflation. When the prices of crude oil, metals and food grains rise, they push up the cost of producing almost everything else in the economy. Owning the commodity itself means you benefit from the same price rise that is eroding the value of your cash.

This is distinct from the way other asset classes relate to inflation. Equities, for example, can sometimes keep pace with inflation over very long periods through earnings growth, but in the short to medium term, rising inflation often means rising interest rates, which compress equity valuations through a higher discount rate applied to future cash flows. Bonds are directly and immediately harmed by inflation because their fixed coupon payments lose real value. Real estate can hedge inflation but is illiquid, requires large capital, and is subject to local supply-demand dynamics.

Commodities, by contrast, operate through a more direct mechanism. Consider gold. When inflation rises, the real yield on government bonds falls (nominal yield minus inflation). Lower real yields reduce the opportunity cost of holding gold, which pays no interest. Capital flows into gold, supporting its price. This is why gold prices globally have tended to perform well during periods when real yields are negative or very low.

Crude oil provides an even more direct hedge. Since energy costs are embedded in the production and transportation of virtually every good, a sustained rise in crude prices is itself a major driver of broader inflation. An investor holding crude oil futures benefits from the same price rise that is increasing costs throughout the economy. On MCX, crude oil futures provide exactly this exposure, denominated in Indian rupees, making them accessible to domestic investors.

Agricultural commodities offer yet another dimension. India's food inflation is closely tied to the prices of staples like wheat, rice, pulses, edible oils and sugar. When CPI spikes in India, it is frequently led by food prices. Instruments like NCDEX futures on agricultural commodities allow market participants - farmers, food processors, and traders - to engage with these price movements, though retail investors must carefully consider the unique risks of agricultural markets including seasonal volatility and government policy interventions like minimum support prices (MSP) and export bans.

Base metals - copper, aluminium, zinc, lead - also exhibit inflation-hedging properties because they are essential industrial inputs. When economic activity is strong enough to generate demand-pull inflation, industrial demand for metals rises, pushing their prices higher. This creates a positive correlation between metals and the inflationary phases of the economic cycle.

The empirical evidence across global markets broadly supports these relationships, though the correlations are not perfect and vary significantly across different inflationary episodes. In India specifically, the rupee's exchange rate introduces an important amplifier. Since India imports large volumes of crude oil, gold and edible oils priced in US dollars, a weakening rupee raises the domestic rupee price of these commodities even if global dollar prices are unchanged. This means Indian commodity prices are influenced by both global inflation dynamics and domestic currency movements - often moving higher when both forces align.

Gold: India's Most Beloved Inflation Hedge

No discussion of inflation hedging in India is complete without a thorough examination of gold. India is the world's second-largest consumer of gold, and the metal holds a unique place in Indian society that goes far beyond pure financial logic. It is a store of cultural wealth, a marriage gift, a form of savings for rural households without formal banking access, and increasingly, a financial instrument traded on regulated exchanges.

From a purely financial perspective, gold's inflation-hedging properties derive from several interconnected mechanisms. First, gold is priced globally in US dollars, so when the dollar weakens (often accompanying US inflationary episodes), gold prices tend to rise in dollar terms. Second, gold has essentially zero industrial consumption relative to its stock, meaning its price is driven almost entirely by investment demand and sentiment rather than economic cycles. Third, and most importantly for Indian investors, the rupee's periodic weakness against the dollar means that gold priced in rupees has often risen sharply even when dollar-denominated gold has been range-bound.

Consider the historical context: during periods of elevated Indian CPI inflation, the rupee has tended to depreciate relative to the dollar because high domestic inflation erodes the real return differential between Indian and foreign assets. This depreciation mechanically raises the rupee price of gold. The result is a double benefit for Indian gold investors during inflationary periods - global gold prices may rise as real yields fall, and the rupee price gets an additional boost from currency depreciation.

Indian investors can access gold in several ways. Physical gold - coins, bars, jewellery - is the most traditional form but carries making charges, storage costs and liquidity limitations. Gold futures on MCX allow investors to take exposure to gold prices without physical ownership, with contracts settled in cash or physical delivery. The lot size and margin requirements mean that futures are more suited to investors comfortable with derivatives. Gold Exchange Traded Funds (ETFs) listed on NSE and BSE provide an equity-style access point where one unit typically represents a fraction of a gram of gold, making them accessible to investors with smaller amounts.

Sovereign Gold Bonds (SGBs), issued by the RBI on behalf of the Government of India, combine gold price exposure with a periodic fixed interest payment, making them particularly efficient from a tax perspective for long-term holders. Investors should refer to the current tax rules under the latest Finance Act and verify SGB issuance schedules with SEBI and RBI announcements.

From a portfolio perspective, gold is often recommended as an allocation of between 5% and 15% of a diversified portfolio for inflation protection purposes, though the appropriate allocation depends entirely on an individual investor's risk tolerance, investment horizon, existing portfolio composition and financial goals. No specific allocation can be recommended here as universal advice.

It is important to note that gold is not a perfect inflation hedge in all environments. In periods of rising nominal interest rates where real yields also increase, gold can underperform because the opportunity cost of holding a non-yielding asset rises. The relationship requires monitoring of real yield trends, not just nominal inflation figures.

Crude Oil, Energy and the Inflation Connection

Energy is the economy's lifeblood. Nearly every production process, every act of transportation, and almost every service requires energy inputs. This is why crude oil and natural gas occupy such a central role in driving global inflation, and why energy commodities are among the most direct inflation hedges available.

India imports approximately 85% of its crude oil requirements, making it exceptionally sensitive to global oil price movements. When Brent crude or WTI crude prices rise sharply - as they did in 2021-22 - the impact cascades through the Indian economy rapidly. Petrol and diesel prices rise, increasing transportation and logistics costs. Fertiliser prices, which are linked to natural gas prices, rise, pushing up agricultural input costs and ultimately food prices. The entire supply chain becomes more expensive, and CPI inflation moves higher.

For investors, this creates a compelling hedging logic. Holding crude oil futures through MCX during a period of rising oil prices allows the portfolio to benefit from the very price movement that is eroding the real value of other holdings. MCX crude oil futures are among the most liquid commodity contracts in India, with active participation from hedgers, traders and investors. The contracts are denominated in Indian rupees and track global crude oil prices with adjustments for the rupee-dollar exchange rate.

Natural gas is a related but distinct energy commodity. While crude oil is primarily a transportation and petrochemical feedstock, natural gas is used for power generation, industrial heating and, critically in a global context, fertiliser production. Natural gas prices on MCX have shown significant volatility, particularly following the European energy crisis of 2021-22. For Indian investors, natural gas offers another dimension of energy price exposure.

However, energy commodities come with specific risks that must be clearly understood. Crude oil prices are heavily influenced by OPEC+ production decisions, which are geopolitical and often unpredictable. The US strategic petroleum reserve releases, shale production economics, and seasonal demand variations all create price movements that may be disconnected from domestic Indian inflation trends. Additionally, energy futures contracts involve concepts like contango and backwardation (the shape of the futures curve relative to spot prices), which affect the returns from rolling futures positions over time.

In contango, the futures price is higher than the spot price, which means that as a futures contract approaches expiry, an investor who rolls it forward to the next contract effectively buys at a premium, creating a negative roll yield. In backwardation, the futures curve is downward-sloping, and rolling creates a positive roll yield. Understanding these dynamics is essential for any investor using energy futures as a long-term inflation hedge rather than a short-term tactical position.

For investors uncomfortable with futures mechanics, energy-sector equity exposure (through diversified funds that include oil and gas companies, without naming specific funds) can provide indirect inflation hedging, as the earnings of energy producers tend to rise with commodity prices. However, this introduces company-specific risks alongside commodity price risk.

Agricultural Commodities and Food Inflation in India

Agricultural commodities deserve special attention in the Indian context because food inflation is disproportionately important to Indian households. The CPI basket assigns roughly 45% weight to food and beverages, meaning that spikes in prices of key staples - pulses, cereals, edible oils, vegetables, dairy - dominate the inflation reading and have the most immediate impact on household welfare.

National Commodity and Derivatives Exchange (NCDEX) is India's primary platform for agricultural commodity futures. It lists contracts on a wide range of agricultural products including chana (chickpea), soyabean, mustard seed, castor seed, wheat, and various other agri-commodities. These contracts serve an important economic function: they allow farmers to lock in prices ahead of harvest (selling futures), and they allow food processors, exporters and traders to hedge their procurement costs (buying futures). They also provide a price discovery mechanism that reflects market expectations of supply and demand.

For investors seeking to hedge food inflation specifically, agricultural futures offer direct exposure. However, the agricultural commodity market in India has unique characteristics that make it more complex than metal or energy markets. Government intervention is pervasive and can significantly affect market prices in ways that are difficult to predict. The government sets Minimum Support Prices (MSP) for major crops, imposes and lifts export and import restrictions, releases buffer stocks from the Food Corporation of India (FCI), and periodically bans futures trading in specific commodities citing speculation concerns. All of these interventions can disconnect domestic futures prices from free-market fundamentals.

For example, edible oil prices in India are significantly influenced by import duties on palm oil, soyabean oil and sunflower oil. When global prices rise, the government may reduce import duties to moderate domestic prices, partially negating the inflation hedge. This means that agricultural commodity futures in India do not always provide the clean, reliable inflation hedge that theory might suggest.

Seasonal patterns are another critical consideration. Agricultural prices in India follow crop cycles tied to the kharif (summer) and rabi (winter) sowing and harvest seasons. Prices often rise during the lean season (post-harvest depletion) and fall after fresh arrivals. Monsoon performance, measured by India Meteorological Department (IMD) data, is the single most watched variable in Indian agricultural markets. A below-normal monsoon typically triggers food inflation concerns and rising prices, while an above-normal monsoon generally suppresses food prices.

For most retail investors, direct agricultural futures trading is complex and requires understanding of storage, delivery logistics, crop cycles and policy risk. A more accessible indirect approach is to invest in diversified commodity indices or funds that include agricultural components as part of a broader commodity allocation, though investors must verify the composition and costs of any such product independently and consult SEBI-registered advisors as appropriate.

The key insight remains valid despite the complexity: food commodity prices are both a driver of Indian CPI inflation and a potential offset within a portfolio that includes exposure to them.

Base Metals: Industrial Inflation Hedges

While gold and crude oil dominate most discussions of commodity inflation hedging, base metals - copper, aluminium, zinc, lead and nickel - offer a complementary and distinct form of inflation protection, particularly during periods of demand-driven inflation associated with strong economic growth.

Copper is often called 'Doctor Copper' by market participants because its price is considered a reliable barometer of global economic health. It is used extensively in electrical wiring, construction, electronics and industrial machinery. When economic activity is robust, copper demand rises strongly, pushing prices higher. This demand-pull dynamic means copper prices tend to be elevated precisely during the phases of the economic cycle when demand-pull inflation is most pronounced.

On MCX, copper futures are among the most actively traded base metal contracts. The pricing reflects global London Metal Exchange (LME) benchmarks adjusted for rupee conversion and domestic supply-demand factors. Indian copper consumption is linked to infrastructure spending, real estate construction and the ongoing electrification of the economy, including the growth of electric vehicles and renewable energy installations - sectors that require substantial copper wiring.

Aluminium, zinc and lead are similarly linked to industrial activity. Aluminium is used in packaging, transportation and construction. Zinc is essential for galvanising steel used in infrastructure. Lead has traditionally been used in batteries, though its demand profile is evolving. All three are traded on MCX and reflect both global LME prices and local Indian demand-supply dynamics.

The inflation-hedging case for base metals is strongest during periods of cost-push inflation driven by supply constraints combined with robust demand - situations where both input costs and economic activity are elevated simultaneously. During pure demand-pull inflation, base metals tend to outperform. During stagflation (high inflation with low growth), they may underperform gold and energy commodities because weak economic growth suppresses industrial demand.

The energy intensity of metal production is an important amplifying factor. Producing aluminium is extremely energy-intensive, requiring large amounts of electricity. When energy prices rise, aluminium production costs increase, providing a cost-floor support to aluminium prices. This creates an indirect link between energy price inflation and metal price inflation that reinforces the hedging properties of metals during energy-driven inflationary episodes.

Investors should also consider that base metal prices are significantly influenced by Chinese economic data because China accounts for a dominant share of global base metal consumption. Stimulus measures, property sector health and manufacturing activity data from China can drive large price movements in copper, aluminium and zinc that may be only loosely correlated with Indian domestic inflation trends. This introduces a source of tracking error in using base metals as domestic inflation hedges.

Despite these nuances, a well-constructed allocation to base metal commodities, whether through MCX futures, Exchange Traded Commodities (ETCs) listed on Indian exchanges, or funds with commodity mandates, can provide meaningful diversification and inflation-hedging value as part of a broader real-asset strategy.

How to Access Commodity Markets in India: Practical Pathways

Understanding the theory of commodity inflation hedging is only useful if investors know how to access these markets practically and safely within the Indian regulatory framework. SEBI regulates commodity derivatives markets in India following the merger of the Forward Markets Commission (FMC) with SEBI in 2015, ensuring a unified regulatory structure across securities and commodity markets.

The first and most direct pathway is through commodity futures contracts on MCX and NCDEX. These are standardised contracts to buy or sell a specific quantity of a commodity at a specified price on a future date. To trade commodity futures, you need a commodity trading account with a SEBI-registered broker who is a member of MCX or NCDEX. Many stockbrokers in India offer combined equity and commodity trading accounts through a single platform.

MCX is the dominant exchange for energy commodities (crude oil, natural gas), metals (gold, silver, copper, aluminium, zinc, lead, nickel) and some agricultural commodities. NCDEX is the leading platform for agricultural commodities. Each exchange has its own contract specifications - lot sizes, margin requirements, delivery procedures and expiry dates - that investors must study carefully before trading.

Futures trading involves leverage, which is both a feature and a significant risk. Margins (initial and mark-to-market) mean that a relatively small capital outlay controls a large notional position. While this can amplify gains when the market moves in your favour, it equally amplifies losses. An investor who misjudges the direction of crude oil prices can face losses that exceed the initial margin deposited. This leverage risk must be clearly understood and managed through position sizing, stop-loss orders and regular monitoring.

Commodity options are a second pathway. MCX offers options contracts on several major commodities including gold, silver and crude oil. Options give the buyer the right (but not the obligation) to buy or sell the underlying commodity at a specified strike price before or at expiry. For inflation hedging purposes, buying call options on commodities provides upside participation if commodity prices rise (as they would during inflationary periods) while limiting the downside to the premium paid. Options can be a more controlled hedging tool than outright futures for investors new to derivatives.

Gold ETFs listed on NSE and BSE represent a third, more accessible pathway. These funds invest in physical gold and list on stock exchanges as units. An investor can buy and sell gold ETF units through a regular demat and trading account, just like buying shares. The price tracks the domestic gold price closely. No physical storage is required, transaction costs are relatively low, and the investment is highly liquid. This makes gold ETFs particularly suitable for investors who want gold inflation hedging without the complexity of futures.

For agricultural commodities, the practical options for retail investors are more limited due to the delivery complexities, lot sizes and policy risks discussed earlier. Many investors gain indirect agricultural commodity exposure through broadly diversified commodity funds that include agricultural components as part of their mandate.

It is important to note that commodity markets have specific tax treatment in India. Gains from commodity futures may be subject to Commodity Transaction Tax (CTT), and profits are classified differently depending on whether the activity is considered trading (business income) or investing (capital gains). Investors are strongly advised to consult a qualified tax advisor and refer to the latest Finance Act for the applicable tax treatment in the current assessment year, as these rules can change with each Union Budget.

SEBI also mandates that commodity brokers provide risk disclosures to clients. Reading and understanding these disclosures before committing capital is not merely a regulatory formality - it is an essential step in responsible investing.

Portfolio Construction: Integrating Commodities as Inflation Hedges

The question of how to integrate commodities into an investment portfolio for inflation protection is more nuanced than simply buying gold or crude oil futures. Thoughtful portfolio construction requires understanding correlations, risk budgeting, investment horizons and the specific inflationary environment being hedged against.

Traditional portfolio theory, associated with the work of Harry Markowitz, emphasises the importance of combining assets with low or negative correlations to reduce portfolio volatility without sacrificing expected returns. Commodities, as a broad asset class, have historically shown lower correlation to equities and bonds over long periods, though correlations can spike during market stress events. This diversification benefit is, in many ways, as valuable as the pure inflation-hedging property of commodities.

A fundamental principle in portfolio construction is that the allocation to any single asset class should be proportionate to the expected contribution of that asset to the portfolio's overall risk-adjusted return, not simply to its expected return in isolation. For commodities, this means the allocation should reflect both their inflation-hedging utility and their standalone risk characteristics - which include high price volatility, storage and roll costs (for futures), and geopolitical sensitivity.

A commonly discussed framework allocates a specific portion of a diversified portfolio to real assets broadly defined - encompassing commodities, real estate and infrastructure - as a structural inflation hedge. Within the commodity allocation, further diversification across commodity types (precious metals, energy, industrial metals, agricultural) reduces concentration risk because different commodities respond to different types of inflation and economic conditions.

Rebalancing is particularly important in commodity allocations. Because commodity prices can be extremely volatile, a gold rally or an oil price spike can quickly cause the commodity allocation to drift well above its target weight. Regular rebalancing - selling some of the outperforming commodity and reinvesting in underperforming asset classes - imposes a systematic buy-low-sell-high discipline. The optimal rebalancing frequency depends on transaction costs, tax implications and the investor's specific objectives.

The investment horizon matters significantly. Over short horizons of one to two years, commodity prices can diverge sharply from inflation trends due to supply shocks, speculative flows, currency movements and policy interventions. Over longer horizons of five to ten years or more, the relationship between commodity prices and inflation tends to be more reliable. This suggests commodities are better suited as a strategic, long-term allocation rather than a tactical, short-term trade.

For Indian retail investors, a practical starting point for commodity inflation hedging might be a modest allocation to gold through ETFs or SGBs, combined with an awareness of commodity market dynamics that helps interpret macroeconomic news. More sophisticated investors with appropriate risk appetite and derivatives knowledge can complement this with selective MCX futures or options positions. In all cases, the allocation should be decided within the context of a comprehensive financial plan that accounts for all asset classes, liabilities, income, and financial goals.

SEBI requires that investment advice on specific allocations be given by SEBI-registered investment advisors (RIAs). For personalised portfolio construction guidance, consulting a qualified RIA is strongly recommended.

The Macro Picture: Inflation Cycles, RBI Policy and Commodity Markets

Commodity inflation hedging does not operate in isolation - it exists within a broader macroeconomic environment shaped by RBI monetary policy, global central bank actions, India's balance of payments, fiscal policy and global growth cycles. Understanding how these forces interact helps investors use commodities more effectively.

The RBI's primary tool for managing inflation is the repo rate - the rate at which it lends overnight money to commercial banks. When inflation rises above target, the RBI typically raises the repo rate to tighten monetary conditions, slow credit growth and reduce aggregate demand. Higher interest rates increase the opportunity cost of holding non-yielding assets like gold and can strengthen the rupee (by attracting foreign capital), which partially offsets commodity price gains for domestic investors.

However, the RBI's ability to tackle cost-push inflation driven by global crude oil prices or food supply shocks through interest rate policy is limited. Raising rates cannot increase oil production in the Middle East or improve monsoon rainfall in Maharashtra. This is why periods of supply-driven commodity inflation often see both high commodity prices and elevated interest rates simultaneously - a challenging environment for investors in fixed income but a relatively supportive one for commodity holdings.

Global commodity super-cycles - extended multi-year periods of broadly rising commodity prices driven by structural demand growth, typically from large emerging economies - provide the strongest backdrop for commodity inflation hedging. The commodity super-cycle of the early 2000s, driven largely by China's industrialisation, saw gold, copper, crude oil and agricultural prices all rise substantially over a decade. Indian investors who maintained commodity allocations during that period benefited significantly.

Currency dynamics are central to understanding how Indian commodity markets interact with global inflation. India's current account deficit - reflecting its large imports of crude oil, gold and other commodities - creates persistent demand for dollars and supply of rupees, contributing to a structural tendency for the rupee to depreciate over long periods. This structural depreciation is an additional tailwind for rupee-denominated commodity returns.

Fiscal policy is another important macro variable. When the Indian government increases spending on infrastructure - roads, railways, power transmission - it drives demand for steel, copper, cement and other construction materials, creating domestic commodity demand that supports prices. The Union Budget's capital expenditure allocations are therefore closely watched by commodity market participants.

Global factors - US Federal Reserve rate decisions, Chinese economic activity, Middle East geopolitics, weather events affecting agricultural output, and energy transition policies - all feed into Indian commodity markets through both the physical price channel and the currency channel. Investors who want to use commodities as inflation hedges need at minimum a basic understanding of these macro linkages to interpret price movements and avoid being wrong-footed by unexpected policy shifts.

The key takeaway is that effective commodity-based inflation hedging requires ongoing macro awareness, not a set-and-forget approach. Monitoring RBI communications, tracking global commodity market reports, watching exchange rate movements and staying informed about key policy developments makes the difference between a well-calibrated hedge and an unmanaged speculation.

Example

Key benefits

How it works

1. 1
   Assess Your Inflation Exposure

   Identify which types of inflation most affect your household or business - food price rises, fuel costs, construction materials - to determine which commodity categories are most relevant as hedges for your specific situation.

2. 2
   Open a Commodity Trading or Demat Account

   Open a SEBI-regulated demat and commodity trading account with a broker who is a member of MCX (for metals and energy) and/or NCDEX (for agricultural commodities), ensuring you understand the account's margin and settlement requirements.

3. 3
   Choose the Appropriate Instrument

   Select the commodity instrument that matches your knowledge level and risk tolerance - gold ETFs for simplicity and liquidity, MCX futures for direct commodity price exposure, commodity options for capped-risk strategies, or Sovereign Gold Bonds for long-term gold with a fixed yield component.

4. 4
   Determine Position Size and Allocation

   Decide on the percentage of your overall portfolio to allocate to commodities based on your investment horizon, risk tolerance and inflation outlook, ensuring this allocation is set within a broader financial plan.

5. 5
   Execute and Monitor the Position

   Place your order during exchange trading hours (MCX trades from 9:00 AM to 11:30 PM IST on weekdays, with commodity hours varying by segment), and monitor your position regularly, tracking margin levels if using futures.

6. 6
   Manage Roll Dates for Futures

   If holding commodity futures beyond a single contract expiry, plan your roll strategy in advance - rolling the position to the next contract before expiry to avoid physical delivery obligations and to manage roll costs in contango or backwardation markets.

7. 7
   Rebalance Periodically

   Review your commodity allocation periodically and rebalance back to your target weight when commodity positions have grown significantly, maintaining the disciplined, diversification-focused character of the inflation hedge.

Formula

Real Return = Nominal Return − Inflation Rate
Real Asset Hedge Effectiveness = Change in Commodity Price (%) − Change in CPI (%) over the same period

Key takeaways

Frequently asked questions

Related terms