Over the coming months, I’ll seek to expand your horizons on the commodity front.
We hear a lot about iron ore, copper, lithium and gold.
For good reason, these markets are highly liquid, contain many stocks for investors to follow and are key barometers for global growth.
They’re also major contributors to Australia’s exports and national wealth.
Yet, there’s so much more to the fascinating world of commodities.
If you eat, drink, or live in it, there’s a market for it!
Commodities surround us; they’re the basic building blocks of modern civilisation.
Yet, investors have shunned them for over a decade. Commodities haven’t sparked nearly the same level of excitement as tech stocks or crypto.
But sentiment is shifting.
Consumers have suffered from supply shortages in the early part of this decade. That caused commodity prices to rise across the board.
And not just creeping up. In some cases, they’ve surged!
Take cocoa.
This tasty commodity, the primary ingredient in your favourite chocolate bar, has gone hyperbolic in recent months. Check this out from Trading Economics:
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| Source: Trading Economics |
It has exploded from US$3,500/t last September to more than US$8,500/t this month.
A 140% surge in six months!
Who would have thought, this oft-overlooked commodity would be one of the best investment ideas in 2024?
Cocoa’s price surge is bad news for chocolate lovers. But it has been a windfall for a small handful of investors who’ve recognised an emerging supply problem.
Ghana and the Ivory Coast, the world’s two biggest producers of cocoa beans have been hit by record-breaking drought on the back of El Niño weather events.
Poor harvests have pushed cocoa prices to record highs in a very short time span. To add to the pain, there’s no sign of the drought easing anytime soon.
It’s one example of the many opportunities that exists in what some would call a ‘niche’ market.
However, this is no longer the domain for sophisticated futures traders; all investors can now access commodity-specific ETFs that track the underlying price of commodities.
Just take WisdomTree Cocoa ETF [LSE:COCO]…it has delivered investors a market-busting 233% gain over the last 12 months.
Cocoa (green) has just edged past Bitcoin (blue) as one of the strongest-performing asset classes in the market today.
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| Source: Trading Economics |
Who would’ve thought, a humble chocolate bar could become one of the market’s most successful trading opportunities!
Now, I’m not saying you should start looking at cocoa as an investment opportunity.
I’m simply trying to highlight the parabolic opportunities that are available in this sector.
We have entered a phase in the commodity cycle where supply pressures and rising prices are becoming more apparent.
So, how should you approach
this investment class?
One solution might be to hoard chocolate before price inflation hits supermarket stores!
However, the key point I’m trying to highlight is that most commodities have seen higher prices in recent years.
Some have crept up slowly, others rapidly.
This shows how there is a misallocation of investor capital away from the things that matter most…commodities. And that’s a major problem.
On the minerals front, a lack of investment in new mines is clearly affecting supply.
Copper refiners in China are facing a crisis of not having enough copper concentrate to maintain normal operations. That’s what is behind copper’s recent lift.
But there are many other supply problems bubbling below the surface in the commodity market, ready to erupt.
Russia, a major supplier of fertiliser to the US, could weaponise its dominance and undermine America’s role as the world’s food basket.
A key reason the US and EU have excluded Russian fertiliser from its sanctions list.
Then there’s China, a nation dominating the downstream supply of critical metals. It can also restrict supply to the West in retaliation to rising hostilities.
Geopolitical tensions are on the rise. Supply fragmentation promises plenty more inflationary pressures.
And that’s another key reason investors should look at commodities.
Gold is breaking into all-time new highs.
Silver and copper are both picking up strong momentum.
Food commodities are making parabolic moves.
These are all signs inflation is far ‘stickier’ than central bankers would care to admit.
The pandemic, wars, and droughts are merging into a perfect storm that’ll affect the rest of this decade, and possibly beyond.
It’s time to hedge your bets
The current economic cycle calls on investors to boost exposure to commodities. The evidence for that grows every month.
As I highlighted earlier in the piece, you could add commodity-specific ETFs or a fund that targets a broad basket of global miners to your portfolio. It needn’t be any more complicated than that.
But if you are willing to increase the stakes, investing in specific stocks could give you further upside from commodity price inflation.
Yet, picking stocks in this sector is inherently difficult and risky.
Reading investment books focussed on the resource market should be your first point of call.
But, whether you prefer to be guided or do it alone, at Diggers and Drillers, we’re much more than a stock-picking service.
I share my knowledge and experience as a geologist in the resource sector with my readers.
It’s more than just trying to pick the hottest mining or exploration stock it’s about building a relationship.
The feedback I’ve had has shown me that investors are just as interested in learning as they are in receiving stock recommendations.
In fact, there is no better way to learn than to invest side-by-side and in real time. Combining the knowledge that you learn with putting real money on the table.
That’s where the true value lies in our commodity focussed service, Diggers and Drillers.
If you’d like to find out more, you can do so here.
Regards,
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James Cooper,
Editor, Mining: Phase One and Diggers and Drillers
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