Energy, critical minerals, and precious metals: Navigating interconnectedness and portfolio strategies in investment risk management

Abstract

Commodity markets are becoming increasingly interdependent, exposing investors and policymakers to systemic risks that intensify during financial crises, geopolitical shocks, and the global energy transition. However, most analyses examine energy, critical minerals, and precious metals in isolation, overlooking how shocks in one market propagate to others. This study addresses this gap by integrating these three asset classes into a single connectedness framework. Using a Quantile Vector Autoregression (QVAR) model and monthly data from January 1984 to December 2024, the results show that energy commodities consistently act as the primary transmitters of spillovers, while critical minerals and precious metals play a dual role, sometimes cushioning portfolios against shocks, but at other times amplifying contagion depending on macroeconomic conditions. Evidence from the Total Connectedness Index and network visualisations highlights shifting spillover patterns, with systemic risk concentrated in coal, aluminium, copper, and silver. Portfolio-based cumulative return analysis further demonstrates that incorporating critical minerals and precious metals enhances resilience against energy-driven volatility. Robustness checks across three- and five-year horizons confirm these dynamics. These findings underscore the need to manage commodity interdependencies to mitigate systemic risk, strengthen financial stability, and build resilient investment strategies in an era of accelerating energy transition and heightened resource dependency.