Inflation Hedging with Stocks Tied to Commodities

Gold is perhaps the most time-honored hedge in times of inflation. It historically has had a low correlation to traditional assets and has risen when stocks fell during inflationary periods like the late 1970s. More recently, investors who stockpiled gold when prices were below $2,000 per ounce in late 2023 and held it as prices surged above $5,000 in early 2026 might understand the attraction.

But physical gold has drawbacks. Investors need to decide where to keep it and may have to pay for a home safe, insurance, or bank storage. Also, gold has suffered long periods of underperformance and offers no dividends or interest payments to support investors during times of weakness. The same is true for other physical commodities.

Gaining direct exposure to cattle, crude oil, lumber, or coffee generally means participating in the futures market. Futures can work for some investors and traders, depending on their risk tolerance, but trading futures isn't for everyone, and not every Schwab account qualifies for futures trading. Also, like physical commodities, the futures market offers no dividends or stock buybacks.

All this explains why some investors seek commodity exposure through funds or commodity-related stocks instead.

Mutual funds and ETPs can offer commodity exposure without requiring investors to store a physical asset or trade futures contracts. Depending on the product, a fund or ETP may hold physical commodities, futures contracts, commodity-related stocks, or a combination of investments.

This distinction matters. A commodity ETP designed to follow gold or crude oil may behave differently from a sector exchange-traded fund (ETF) that owns shares of mining or energy companies. The commodity's price may be the primary driver of a commodity ETP, while a stock fund may also be affected by management decisions or other fundamental developments.

Sector funds allow investors to express a view on a specific sector of the economy that may benefit from anticipated events. However, when conditions change, the shift can have a negative impact on many businesses within a sector, exposing investors to volatility.

Those who want to invest in gold through ETPs should understand that not all ETPs are alike. Some ETPs buy physical gold, while others invest in gold futures, options, and other investments, such as stocks in gold-related companies, in an attempt to mirror the investment profile of owning gold. Performance and expenses can vary widely across gold ETPs, so it's important to conduct research before selecting a product.

An ETP's prospectus provides its investment objectives and associated risks, along with expenses. Potential investors should also understand any tax implications of the ETP and be aware that some ETPs have liquidity restrictions. This applies to all ETPs, not just those investing in gold.

Investors can also use sector or industry funds to gain exposure to energy and natural resources. Energy funds may hold oil producers, refiners, or pipeline operators. Natural resources funds invest across the spectrum of commodities and offer exposure to natural gas, metals, water, and timber.

These funds traditionally have been popular with those who want to make bullish bets on the world economy, which tends to use more of these materials during periods of growth. Like stocks, ETPs that invest in natural resources can be volatile. And some of these markets, like water, have less history in terms of metrics and returns.

Investors can research energy and natural resources funds using the fund screener on Schwab.com or the thinkorswim^® platform.

Another approach is to buy shares of companies whose revenue or profitability is tied to commodity markets. Mining firms, oil producers, agricultural companies, and materials businesses may benefit when the prices of their products rise.

These stocks are sometimes called commodity proxies, but they don't track commodity prices precisely. Operating costs, corporate governance, debt, and company management can influence returns. Commodity-related stocks also carry the risks associated with equity investing and can be highly volatile.

On the other hand, they generally are easier to trade and own than physical commodities. Some may pay dividends as well.

Big energy firms like ExxonMobil (XOM), ConocoPhillips (COP), and Chevron (CVX) tend to move in sync over time with crude oil, their major product. Shares often rise sharply in times of oil scarcity.

That was the case in 2026, when the S&P 500 energy sector climbed 45% from the start of the year through mid-September as U.S. crude oil soared from below $70 per barrel to above $100. During this time, lofty crude prices drove dramatic earnings gains among oil and oil infrastructure stocks, and investors benefited.

"Case in point, the second-quarter earnings cycle of 2026 featured year-over-year earnings growth in the energy sector, averaging north of 140% for the 21 stocks in the sector," said Joe Mazzola, head trading strategist at Schwab. "Leaders in the space included Occidental Petroleum (OXY), Valero Energy (VLO), Marathon Petroleum (MPC), Phillips 66 (PSX), and Chevron (CVX), all with earnings growth north of 200%. And it wasn't just earnings. Sales growth for the energy sector averaged more than 40%."

The flip side is that these same stocks often fall when oil prices decline and hit energy companies in the pocketbook. Oil and other energy prices are extremely volatile, so investors should understand that going in. ExxonMobil, for example, saw its earnings per share surge nearly 150% in 2022, only to lose 33% in 2023. Similar whipsaw action was experienced at Chevron, which posted a 124% year-over-year earnings gain in 2022 but followed this up with a 38% loss in 2023 and continued declines in 2024 and 2025 of about 14.5% and 32%, respectively.

Oil is just one part of the broader energy market, of course. Investors who want exposure to pipelines might look at energy infrastructure companies like Williams (WMB), Kinder Morgan (KMI), or Enbridge (ENB). Other companies provide exposure to natural gas, fertilizers made with energy products, or to the container shipping industry that moves energy around the globe.

Investors can research energy companies using the stock screener on the thinkorswim platform or Schwab.com. Schwab.com also offers individual energy stocks on its stock screener.

Between 2000 and 2024, the S&P 500 energy sector placed first in sector performance six times but also came in dead last five times. Over that entire era, it averaged 7.5% annual growth, just under the S&P 500^® Index's 7.7% growth over those years, according to S&P Global.

Some might argue that, with a track record like that, the energy sector may not be worth the higher volatility it often brings. The counterargument is that the energy sector's average dividend yield is typically among the highest of the 11 S&P 500 sectors.

It's also tempting to get some energy exposure when gas prices rise. Energy gained 55% in 2021 and 66% in 2022, according to S&P Global, followed by the 45% year-to-date gain through September 2026. Investors facing high gas prices but also owning energy stocks might take comfort from extra returns in their portfolio, enjoying some of the same profits energy companies make in such times and soothing the sting at the pump.

When gas prices fall, however, energy-related stocks can take a hit. This was seen in early 2023 as crude prices retreated after the initial shock of Russia's invasion of Ukraine. Gasoline prices were down more than 17% year over year as of March 2023, sending the broader energy sector down as well.

TV ads often tout gold coins and bars as a way to fight inflation. For investors who don't want to buy physical gold, investing in gold-mining companies can also potentially provide diversification and a potential inflation hedge.

Gold miners come in two main types: junior and major. Junior miners are companies that are newer or more speculative, often mining unproven claims. Major miners are more established companies with production and infrastructure in place, mining on proven and sustainable claims. Both categories include publicly held companies that investors can find using the stock screener on Schwab.com or the thinkorswim platform.

The theory behind owning gold-mining stocks is that if the price of the precious metal goes up, profit margins of mining companies rise as well, which could positively impact their stock prices.

But the price of gold is only one component of the underlying value of these companies. Factors such as geopolitics, energy and labor costs, and corporate governance can affect the profitability of individual gold-mining firms, but not necessarily the price of gold. As with any investment, it's important to research before investing, especially for beginners.

Though gold and gold-mining stocks have tended to rise during inflationary eras, that inflation often drives central banks to raise rates, which tends to send the U.S. dollar higher and gold prices lower. That was the case in mid-2026, when gold retreated from record highs as central banks grew more hawkish.

Agricultural companies are often tightly tied to specific commodities, notably corn, wheat, soybeans, cattle, and hogs—all of which are traded in the global futures market.

Agricultural firms are also heavily exposed to geopolitical currents. They often depend on exports, exposing them to trade disputes, and high oil prices can raise fuel, fertilizer, and shipping costs. This dynamic can be harmful to profits. So can tariffs. The S&P GSCI Agriculture Index fell sharply in mid-2025 after the Trump administration raised tariffs on a wide range of imports and China retaliated by paring purchases of U.S. soybeans and other agricultural commodities. Agricultural stocks also fell initially after the Iran war began in early 2026 as oil spiked.

A few farm-related commodities that once were important have fallen by the wayside or are now very niche markets, including lumber and pork bellies. This can mean high volatility, possibly requiring a more experienced investor who understands the substantial risks associated and their own risk tolerance.

Global food demand often grows with the population, which is one reason agriculture investments and investments in related companies like farm equipment and seed firms can be beneficial at times. However, the S&P GSCI Agriculture Index returned only 3.42% annualized over the decade through late 2026, well behind the broader markets.

AI may not be a physical commodity. Yet in some ways, it acts like one, with arguably as big an impact on the economy as oil. The growth of AI has increased demand for electricity, water, construction materials, memory, and storage, to name a few. Those who want AI exposure but are wary of companies at the center of the buildout might consider companies that supply copper, aluminum, and other materials used to build infrastructure that supports AI.

Even energy, construction equipment, and natural resources companies are part of the AI equation. Firms like GE Vernova (GEV) and Caterpillar (CAT), and most notably, memory chip makers like Micron (MU) and Sandisk (SNDK), became popular AI proxies in the mid-2020s. Like stocks exposed to traditional commodities, these provided investors some indirect exposure without jumping completely in. Of course, if AI spending slows, that could hurt shares of these firms.

Several companies, including Weyerhaeuser (WY) and UFP Industries (UFPI), have heavy exposure to timber. These stocks have tended to be volatile, and they struggled in 2026 as the U.S. housing market weakened. Still, like many, but not all, commodity-oriented firms, they have paid dividends that might help temper investors' losses when times get tough. The price of lumber, traded in CME futures contracts, can influence these stocks.

Gold and oil are usually top of mind when investors consider commodity proxies. Recent years saw changes in the economy that presented new opportunities outside those traditional areas. AI, not a commodity, can arguably act like one, and has a pack of associated stocks that have tended to move up and down with demand for the new technology. Whether AI has the long-term staying power of something like wheat or oil remains to be seen. Water and other natural resources commodities are also carving a niche.

For investors, a lot comes down to how much risk they're willing to take on. The headline risk is that these are volatile products that respond more quickly to geopolitics and underlying economic trends than more traditional areas may. The argument in favor is that owning some assets that can rise when inflation surges is a popular way to hedge yet not a guaranteed strategy.

Inflation may be "the parent of unemployment and the unseen robber of those who have saved," in the words of former U.K. Prime Minister Margaret Thatcher. While one thought is that investors who own commodity proxy stocks may blunt some of the pain and make those gas station and grocery store visits less unpleasant, investors need to remember that these investments don't guarantee protection. Before investing, investors should consider how each approach fits their objectives, time horizon, and risk tolerance, especially when it comes to volatility.