Last year brought a near-complete devastation on the markets. Finding investment opportunities with strong upside performance has proven difficult due to concerns about domestic and global economic stability. But within this malaise, the markets have opened doors for critical commodities to buy.
Unlike the equities sector, physical assets have no shareholders in the traditional sense of the word. They also lack a board of directors, a management structure and disgruntled employees. When looking at a list of commodities to buy, you have one assurance: your target asset will trade on its fundamentals, and not on unforeseen, ancillary events.
Another advantage in this sector is its consistent framework. While even the best commodities can trade irrationally, they usually move based on logical expectations. For instance, fear and uncertainty has recently gripped Wall Street. As a historical safe-haven asset, gold features an inverse relationship with market sentiment.
Sure enough, the spot price for the yellow metal has jumped over 7% since the beginning of October. On the other hand, the Dow Jones Industrial Average has slipped nearly double digits over the same period. Even today we saw a significant increase in gold futures as doubts continue to build regarding the current health of the market.
Still, I want to present a reasonable warning: gambling on physical goods is a tough venture. No matter what the asset, an unexpected catalyst — political unrest, supply chain disruption, etc. — can ruin a great thesis.
That said, an unexpected catalyst could also skyrocket your portfolio. It’s this fine line between euphoria and despair that keeps speculators coming back for more. If you’ve got nerves of steel, here are my picks for best commodities to buy:
Admittedly, what I’m about to say sounds silly, but I’ve got an inkling most of you share my opinion: the best commodities to buy are those you can hold in your hand.
Intrinsically, there’s something special about going home from the local coin shop with an American Silver Eagle, for instance. Each bullion product is carefully crafted, providing you with a tangible investment. What do you get when you invest in a company or an exchange-traded fund? A mere digital record.
In terms of physically and easily accessible investments, I’d go with palladium. From a historical perspective, palladium has significantly outperformed other precious metals, even during sector downturns. Since the start of October, palladium is up nearly 20%.
The other catalyst is geopolitical. Russia produces the most palladium, followed by South Africa. From there, all other sources’ production rate falls off a cliff.
Needless to say, we have poor relations with Russia. However, we also have a negative stance on South Africa, especially due to its controversial land-appropriation policy.
What this translates to is a supply squeeze, which is positive for palladium prices. For those that want digital exposure, check out either the ETFS Physical Palladium Shares (NYSEARCA:PALL) or the Sprott Physical Platinum and Palladium (NYSEARCA:SPPP).
In our rapidly-growing world, next-generation technologies have infiltrated almost every corner of our lives. But the mechanisms to feed this revolution are decidedly archaic. For instance, we burn fossil fuels to extract usable energy. If President Trump had his way, every neighborhood may have its own coal mine.
But no other energy source generates as much controversy as uranium. Thanks to high-profile incidents and disasters such as Chernobyl, Three Mile Island, and most recently, Fukushima, the public is wary of this double-edged sword. Yes, uranium provides our energy needs, but chaos is theoretically only one oversight away from exploding.
Still, I have the view that over the long-term, uranium represents one of the best commodities to buy. It all boils down to cost-effectiveness. I look at the energy issue from a basic, scientific reality: more work requires more energy. That’s why if you have a new year’s resolution to get fit, you must break a sweat.
These days, we’re seeing a push into green energy sources, namely wind and solar. On paper, these formats represent free energy. In reality, as The Economist has demonstrated, the costs associated in either installation or maintenance make them economically inefficient.
As controversial as this sector is, uranium provides gobs of power for a relatively cheap price. Money talks and the smelly stuff walks. If you’re interested in going nuclear, your best bet is Global X Uranium ETF (NYSEARCA:URA).
Source: fdecomite via Flickr
To me, lithium stands out as a no-brainer among the best commodities to buy. While not the rarest of elements, lithium forms the backbone of electric-vehicle batteries. Whether you like Tesla (NASDAQ:TSLA), Nio (NYSE:NIO), or some other manufacturer, the consensus is clear: EVs and their lust for the silvery white metal won’t fade.
So why did its demand fall off a cliff last year? In 2018, the Global X Lithium ETF (NYSEARCA:LIT) lost a staggering 30%. Worse yet, LIT remains mired in a bearish trend channel. The problem catapulted due to a perfect storm of headwinds.
While lithium demand from EVs consistently remained strong, the mining community overproduced the asset. That led to a sudden supply glut that pressured the spot price. Second, deteriorating economic conditions forced many lithium companies in China to dump the metal. That triggered further downside on an already bearish environment.
Finally, unfavorable currency fluctuations hurt all commodities to buy, not just lithium. A stronger dollar typically imposes deflationary pressure on physical assets.
Nevertheless, I think it’s a mistake to read too deeply into the current volatility. Most car companies recognize the dramatic potential for EVs. As a result, the majors all have invested significant money into their EV programs. It’s only a matter of time before rationality bolsters this market.
As of this writing, Josh Enomoto is long gold, silver and palladium.
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