In an era of persistent inflation, geopolitical tensions, and economic uncertainty as we navigate the complexities of 2025, investors are increasingly turning to assets that can preserve and grow wealth. Gold exchange-traded funds (ETFs), such as SPDR Gold Shares (GLD), have long been a go-to for hedging against rising prices, offering a straightforward way to track the spot price of the yellow metal. However, natural resources ETFs, which provide exposure to a basket of commodities producers across sectors like energy, metals, agriculture, and mining, present a compelling alternative. Natural Resources ETF’s not only hedge inflation but often deliver enhanced benefits in diversification, returns, and income. For many investors, natural resources ETFs hold the edge over their gold-focused counterparts.
Broader Diversification: Spreading Risk Across the Commodity Spectrum
One of the standout advantages of natural resources ETFs is their inherent diversification. While gold ETFs are laser-focused on a single asset, gold prices, natural resources funds spread investments across multiple commodities and the companies that produce them. This includes oil and gas giants, base metal miners, agricultural processors, and even rare earth element firms, capturing trends in energy transitions, food security, and industrial demand.
This breadth reduces the risk of over-reliance on gold’s performance, which can falter if factors like rising interest rates increase its opportunity cost. In contrast, natural resources ETFs benefit from inelastic demand in essentials like energy and metals, making them more resilient during inflationary spikes. For instance, during modest inflationary periods, resource equities have historically outperformed traditional stocks and bonds by leveraging exposure to a wider array of price drivers.
Leveraged Upside: Amplifying Commodity Price Gains
Natural resources ETFs aren’t just passive trackers; they offer leveraged exposure to commodity price movements through equity holdings in producing companies. When raw material prices rise due to supply constraints or demand surges, these firms can pass on costs to consumers while benefiting from fixed operational expenses, leading to outsized profit margins. This operational leverage can magnify returns by 1.5 to 6 times the underlying commodity’s move, far surpassing the 1:1 tracking of gold ETFs.
Gold ETFs, by design, mirror bullion prices without this equity multiplier, limiting their growth potential to the metal’s appreciation alone. In bullish commodity cycles, such as those driven by global infrastructure booms or green energy shifts, natural resources funds capture not just price hikes but also company expansions, like new mines or refineries. This dynamic makes them particularly attractive for growth-oriented investors seeking more than mere preservation of capital.
Reliable Income Streams: Dividends That Gold Can’t Match
Unlike gold ETFs, which generate no yield and sit idle as non-income-producing assets, many natural resources ETFs distribute dividends from profitable underlying companies. Mature sectors like energy and materials often yield 1-3%, providing a steady cash flow that can be reinvested or used to offset inflation’s erosive effects on purchasing power.
For example, top holdings in funds often include dividend-paying stalwarts such as ExxonMobil and Dow Inc., turning your inflation hedge into a semi-passive income generator. This feature is especially valuable in low-yield environments, where gold’s opportunity cost forgoing interest from bonds or stocks becomes more pronounced. Over time, these payouts compound, enhancing total returns beyond what a zero-yield gold ETF can offer.
A Stronger Inflation Shield: Historical Resilience
When it comes to battling inflation, natural resources ETFs have a more robust track record than gold alone. While gold shines in extreme crises, broader commodity equities excel in everyday inflationary pressures, outperforming in 90% of rising inflation episodes due to their ability to pass through higher costs. Studies show that resource sectors maintain real value better during unexpected inflation surges, as equities in mining and energy adapt via pricing power and volume growth.
This was demonstrated in a Hartford Funds whitepaper titled “Which Equity Sectors Can Combat Higher Inflation?” published in 2024, analyzing data from 1973 to mid-2024. The analysis uses monthly rolling 12-month returns in excess of CPI, focusing on different sectors and their ability to combat inflation through pricing power. It notes that resource heavy sectors like energy excel because inflation often stems from commodity supply/demand imbalances, allowing better cost pass-through than non-resource sectors.
Gold, conversely, has lagged inflation in about 40% of high-inflation periods, such as the 1980s or parts of 2021-2022, when competing yields drew capital away. Natural resources funds, by encompassing a commodity basket, provide a more consistent hedge, mitigating downside in equity markets while capitalizing on rate-hike environments where demand remains steady.
Performance Edge: Data from 2021-2022 Speaks Volumes
The numbers underscore this superiority. From 2021 to 2022, natural resources ETFs outpaced gold benchmarks amid volatile markets and high inflation during 2022. However, in 2025 alone, as inflation somewhat reaccelerated with wage pressures and supply chain strains, gold miners posted +120% year-to-date returns compared to gold’s +50%, dominating the top-performing ETF lists. Looking back at the last 30 years we find the following:
Gold (Spot Price, Oct 1995–Oct 2025): Cumulative total return of about 960% (from roughly $380/oz to about $4,000/oz), or roughly 7.7% annualized. This was driven by massive gains in the 2000s commodity super cycle, and safe haven rallies post-2008 and during 2020-2022 inflation, but with flat periods in between such as 2013-2019.
S&P Global Natural Resources Index (Back-Tested, Oct 1995–Oct 2025): Based on available back-tested price levels (approximate start 650 in late 1995 to current 3,260), the price return is roughly 402%. Adding reinvested dividends (with an average yield of about 2.5% for resource equities), the estimated total cumulative return is about 950% or roughly 7.6% annualized.
Balancing the Scales: Not Without Risks
To be fair, natural resources ETFs aren’t risk-free. Their equity tilt introduces higher volatility, often 20-40% annualized standard deviation versus gold’s 15-20% and exposure to company-specific issues like regulatory hurdles or debt loads. Gold ETFs, with their simplicity and liquidity, remain ideal for conservative portfolios. Yet, for those with moderate risk tolerance, the rewards of natural resources funds often justify the trade-off, especially when blended.
As of October 2025, with gold prices hovering near record highs, natural resources ETFs emerge as the more versatile and potent choice for inflation hedging. Their diversification, leverage and income most likely make them a strong addition to diversified portfolios, potentially turning economic headwinds into investment opportunities.
This is not to suggest that gold should not be part of a portfolio. In fact, gold can be combined with natural resources to jointly combat inflation. Gold typically will outperform during periods of economic recessions or equity bear markets. In these environments, gold acts as a “safe-haven” asset, drawing inflows amid fear and uncertainty, while natural resource equities, being cyclical and tied to industrial demand and broader stock market sentiment suffer sharp drawdowns from reduced economic activity and risk-off selling. When the two are combined, they can add further diversification, yet also potentially hedging inflation at different points in time.
Always consult your financial advisor to tailor your investment portfolio to your needs.
About the Author
Joseph M. Favorito, CFP® is a Certified Financial Planner® as well as the founder and managing partner at Landmark Wealth Management, LLC, a fee-only SEC registered investment advisory firm. He specializes in helping individuals and families develop comprehensive financial strategies to achieve their long-term goals.