Why Energy ETFs Are Struggling and Gold Is the Safest Bet Right Now

The first half of 2025 has laid bare the perils of overexposure to energy commodities. The Invesco Optimum Yield Diversified Commodity Strategy ETF (PDBC) — a flagship fund tracking 14 commodities — slumped 3.8% year-to-date through June, underscoring the risks of its heavy energy allocation. With oil prices pressured by oversupply and geopolitical volatility, investors are rethinking their reliance on energy-centric ETFs. Meanwhile, gold-driven funds like the SPDR Gold Shares ETF (GLD) surged 28% YTD, proving that diversification and inflation hedging require more than just "commodities" in a portfolio. Here's why rebalancing toward gold-tilted strategies is critical.

The Energy ETF Trap: PDBC's Heavy Oil Exposure Backfires

PDBC's underperformance stems from its 45% weighting in energy commodities, including crude oil derivatives like WTI and Brent. While the fund's diversified structure includes gold (~10%) and agriculture, its energy dominance left it vulnerable to oil's Q2 slump.

• Oil's Downward Spiral: Despite Middle East tensions briefly lifting prices to $75.67/barrel in June, OPEC+ supply hikes and U.S. shale production records (13.59 million bpd) overwhelmed demand. The EIA projects Brent to average just $71/barrel in 2025, down from $85 in 2024.
• Contango Drag: Energy markets remain in contango, where futures prices exceed spot prices. This forces PDBC to roll contracts monthly, incurring losses unless prices rebound.

PDBC's energy-heavy allocation dragged returns as oil declined, while gold's safe-haven appeal propelled GLD to a 28% gain.

Gold's Ascendancy: Why GLD Outperformed and Why It Matters

Gold's Q2 surge — hitting $2,450/oz in May — wasn't just a random rally. Three factors aligned to make gold ETFs like GLD a standout hedge:

1. Inflation Uncertainty: While oil's decline cooled headline inflation, core inflation (excluding energy) remains stubbornly high. Investors flocked to gold as a store of value during Federal Reserve policy uncertainty.
2. Central Bank Buying: Turkey and China added record gold reserves, signaling a shift from dollar dependency. Central banks now account for ~20% of annual gold demand.
3. Geopolitical Hedge: Middle East tensions and U.S.-China trade disputes reinforced gold's role as a “crisis currency.”

The Case for Strategic Rebalancing: Shift to Gold-Tilted ETFs

The lesson from Q2 is clear: commodity ETFs are not equal. Energy-centric funds like PDBC face structural headwinds, while gold's diversification benefits are unmatched. Here's how to adjust:

1. Reduce Exposure to Pure Energy ETFs

• Consider exits: Sell PDBC or similar funds (e.g., XLE, XOP) if oil prices stay below $75/barrel.
• Lock in losses: Use PDBC's slump as a tax-loss harvesting opportunity, reallocating to safer havens.

2. Embrace Gold-Heavy Funds

• GLD (SPDR Gold Shares): The gold ETF king, with minimal fees and direct exposure to physical gold.
• 3EDGE Dynamic Hard Assets ETF (EDGH): Allocates ~30% to gold and 25% to agriculture, avoiding energy overhang.
• Hartford Schroders Commodity Strategy ETF (HCOM): Balances gold (28%), agriculture, and industrial metals, outperforming PDBC by 10+ percentage points YTD.

Gold's resilience amid oil's decline highlights its role as a stabilizer in volatile markets.

3. Hybrid Strategies for Maximum Flexibility

• Pair gold with deflation hedges: Use inverse equities (e.g., SH) or Treasury ETFs (TLT) to cushion against energy-driven inflation spikes.
• Set stop-losses: For residual energy exposure, place stops below $68/barrel (oil's 2025 low) to limit losses.

Final Takeaway: Diversify, but Do It Smarter

The Q2 2025 commodity market taught us that diversification isn't just about holding multiple assets — it's about weighting them wisely. Energy ETFs remain a high-risk bet in an oversupplied market, while gold offers stability and inflation protection. Investors who rebalance toward gold-tilted funds or hybrid strategies will be better positioned to navigate the next phase of economic uncertainty.

Stay vigilant, stay diversified, but don't let “diversification” become a synonym for overexposure to energy.

Capital shifts reflect investor skepticism toward oil and confidence in gold's safe-haven appeal.