By Harry Prabandham · Updated September 28, 2026
Investing & Markets
Commodities and Gold: How They Work, Risks and Taxes
Commodities and gold are real assets with no cash flows. They can diversify stocks and bonds but are volatile, and gold is taxed as a collectible.
Commodities and Gold: How They Work, Risks and Taxes
1 / 6
What are commodities, and why do investors consider them?
- Commodities are raw materials: energy, industrial and precious metals, agricultural products and livestock.
- Their prices respond to supply shocks and inflation surprises, which are not always the same forces that move stocks and bonds.
- Gold is often held as a store of value; its price has risen during some periods of financial stress, but not reliably.
- Commodities produce no earnings or interest, so returns come from price changes and, in futures, from roll and collateral yield.
Try Our Free Tools
Full Guide
What are commodities, and why do investors consider them?
- Commodities are raw materials: energy, industrial and precious metals, agricultural products and livestock.
- Their prices respond to supply shocks and inflation surprises, which are not always the same forces that move stocks and bonds.
- Gold is often held as a store of value; its price has risen during some periods of financial stress, but not reliably.
- Commodities produce no earnings or interest, so returns come from price changes and, in futures, from roll and collateral yield.
Ways to get commodity exposure
- Physical bullion and coins involve storage, insurance and dealer markups.
- Physically backed exchange-traded products hold bullion in a vault on investors' behalf.
- Futures-based funds hold contracts that must be rolled before they expire.
- Stocks of producers such as miners and energy companies add company-specific and stock market risk.
What is contango, and why does it matter?
- Futures funds sell expiring contracts and buy later ones, a process called rolling.
- In contango, later contracts cost more than current ones, so rolling detracts from returns; in backwardation, rolling can add to them.
- Over time, a futures fund's return can differ significantly from the change in the commodity's spot price.
- The CFTC urges investors to understand how a commodity fund gets its exposure before investing.
How are commodities and gold taxed?
- Gold, silver and other bullion are collectibles, so long-term gains are taxed at up to 28% federally rather than the 20% top capital gains rate.
- Physically backed precious-metal funds structured as grantor trusts generally pass collectible treatment through to shareholders.
- Regulated futures contracts fall under Section 1256: marked to market each year and taxed 60% long-term and 40% short-term.
- Funds organized as partnerships issue Schedule K-1s, and the 3.8% net investment income tax can apply to gains.
Main risks
- Prices can move sharply on weather, geopolitics, supply disruptions and demand shifts.
- With no cash flows, there is no earnings-based valuation anchor.
- Commodities have gone through long stretches of weak returns, and their link to inflation has been inconsistent.
- The CFTC warns about precious-metals schemes, especially those targeting retirement savings.
Key takeaways
- Commodities and gold are real assets whose returns depend entirely on price changes and futures mechanics.
- How you hold them (bullion, trust, futures fund or stocks) changes both the risks and the tax treatment.
- Collectible and Section 1256 rules make taxation different from stocks; confirm details with a CPA.
- Volatility is high, and diversification benefits have varied across periods.
Related Topics
Investing & Markets
Inflation and Your Portfolio: How Different Assets Respond
Inflation reduces what each dollar buys. TIPS, I bonds, real assets, and stocks respond differently, and no single asset has kept pace in every period.
Investing & MarketsArt and Collectibles as Investments: Taxes, Costs, and Risks
Art and collectibles produce no income, are hard to value and sell, and gains are taxed at up to 28% federally. Carrying costs and fraud risk add up.
Investing & MarketsCarbon Credits and Carbon Markets: How They Work
A carbon allowance or credit covers one metric ton of CO2-equivalent. Compliance markets cap emissions; voluntary offsets vary widely in quality.
Sources
- CFTC — Learn About Risks Before Investing in Commodity ETPs or Funds
- CFTC — Understand Risks and Markets Before Reacting to Internet Hype (precious metals)
- 26 U.S.C. § 1(h) — 28% rate on collectibles gain
- 26 U.S.C. § 1256 — Section 1256 contracts marked to market
- IRS Publication 550: Investment Income and Expenses