Best Commodities to Invest in for Growth in 2022
Commodities are outperforming the market in 2022 as investors flee to safer assets. Moreover, analysts predict that the top commodities to invest in have more room to run this year.
To illustrate, the S&P Goldman Sachs Commodity Index (SPGSCI) is up almost 40% YTD, while the S&P 500 (SPX) is down 15%. Yet, according to recent research from Goldman Sachs, tight inventory and low production ability are concerning as the war in Ukraine persists.
For one thing, commodity prices are “extremely vulnerable” to disruptions from conflict. As a result, markets can continue seeing pressure, leading to even higher prices. With this in mind, commodity prices are the result of supply and demand.
So, when supply is disrupted, demand often remains consistent, making the resource more valuable. For example, with Russia being the largest oil exporter, oil prices are up over 44% this year.
On top of this, inflation is surging, up 8.3% YOY, making it the highest level in 40 years. As the Federal Reserve sets its sights on fighting inflation, commodities can be a great place to park your money and still earn a return. Keep reading to find the best commodities to invest in and boost your returns in 2022.
Top Performing Commodities to Invest in 2022
The commodity market consists of essential raw materials that businesses purchase and turn into goods. For example, commodities include resources such as:
- Energy (Oil & Gas)
- Metals (Gold, Lithium)
- Agricultural Inputs (Wheat, Fertilizer)
These resources are essential to keep the economy running smoothly. For that reason, when supply is tight, prices rise and companies producing them will often see higher profits.
Furthermore, when geopolitical tension is high, buying natural resources is one of the best ways to hedge risk. Accordingly, they tend to hold their value better than growth stocks when risk is high.
If you want to beat the market this year, the best commodities to invest in in 2022 include:
No. 3 Metals
Metals are often one of the first things that come to mind when investors think of commodities to invest in. Although this may be true, they play a vital role in several industries with no substitutes.
Precious metals make it possible to conduct electricity, power medical devices, build vehicles, etc. On the other hand, base metals are gaining popularity as new industries like EVs require more nickel.
Gold
Gold is an investor favorite, often seen as the ultimate hedge from geopolitical tension, inflation, etc. Throughout history, gold has been seen as a source of value. With this in mind, gold is a critical factor in electronics, jewelry and even space exploration, which helps it maintain its high price.
If you wish to invest in gold, you have a few options.
- Gold ETF: SPDR Gold Shares (NYSE: GLD)
- Gold Mining Company: Barrick Gold (NYSE: GOLD)
Lastly, you can also buy physical gold in bars or coins. Though this can be one of the top commodities to invest in, it can also be costly to store and move.
Lithium
Lithium is often put on the side burner for more popular options like gold or silver. But lithium is a hot commodity being a critical component in EV batteries.
In fact, lithium demand is outweighing supply, with prices up close to 500% this past year. Here are a few ways to invest in the explosive lithium market in 2022.
- Lithium ETF: Global X Lithium & Battery Tech ETF (ARCA: LIT)
- Lithium Mining Company: Albemarle (NYSE: ALB)
Although you cannot invest in lithium directly, buying EV stocks like Tesla (Nasdaq: TSLA) can help you gain exposure to the metal.
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Is it too Late to Buy the Top Commodities to Invest in 2022?
Several of the top commodities to invest in this year are already up over 20%, 30% or 100%. But, as I mentioned earlier, the commodity market is driven by supply and demand.
With demand not likely to change drastically anytime soon, the focus will be on supply. Yet it could take years in some instances to get the production ability to fill the supply gap. With this in mind, commodities are expected to remain tight.
For this reason, analysts expect prices to remain elevated as a result. Not to mention, rising geopolitical tension makes the market even more attractive.
Lastly, to gain broad exposure to the commodity market, you can invest in a broad ETF such as the Invesco DB Commodity Index Tracking Fund (NYSE: DBC). The fund is up 38% YTD with holdings in gasoline, oil, wheat, gold and more.
