Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
2022 started off with a slump for equity and cryptocurrency prices, but real assets like gold, crude oil, and agricultural commodities have more than held their dollar value.
Even before Russia’s invasion of Ukraine resulted in extreme uncertainty over energy and raw material exports from both nations, commodities had already started to outperform other assets.
This graphic looks at how five key assets have performed in 2022 thus far, comparing the prices of WTI crude oil, the Invesco DB Agriculture Fund, gold, the S&P 500, and bitcoin.
Just a few months into 2022 and commodities have already surged by double digits while nearly every other asset class has struggled to hold its value. Equity indices have continued to slide downwards from their all-time highs set in January of this year, with the S&P 500 down 13.4% from its all-time high.
Although the Energy sector of the S&P 500 is up 33.4% and the Information Technology sector is down 18.9% YTD, tech makes up more than a quarter of the index at 28.1% while Energy only makes up 3.7%. Other speculative tech assets like bitcoin and other cryptocurrencies have also significantly drawn down in 2022, with bitcoin down 16.3% and the total crypto sector’s market cap down by 22.4%.
In the meantime, commodity investors have seen record-breaking rallies and volatility, especially in the energy and agricultural sectors. Crude oil is already up 34.4% in 2022 after WTI Crude reached highs of $129 a barrel, and the Invesco DB Agriculture fund which tracks wheat, corn, soybeans, and other agricultural commodities is up 10.4% YTD.
While 2021 saw metals and energy prices surge, precious metals like gold and silver lagged behind the pack with negative returns. However, the Fed’s suggestion of raising interest rates has seen investors move out of speculative growth assets and into gold which has historically outperformed other assets in tightening cycles.
Russia’s invasion of Ukraine has also spurred investors towards gold in a flight to safety, with the yellow metal’s price rallying by more than six percent in February, the month of the invasion.
As Russia is cut off and cuts itself off from trade with the U.S. and other Western countries, a new trade system with China that primarily uses gold-backed settlement akin to the petroyuan could push gold prices even higher.
Not long after the U.S. announced sanctions against Russia alongside the European Union and G7 nations, Russia immediately responded with comprehensive export bans against 48 different countries including the U.S. and the EU.
Currently, Russia is one of the biggest crude oil exporters in the world and exported around 4.7 million barrels of crude oil a day for a total export value of $110 billion in 2021.
Agriculture and specifically wheat prices have also surged as the invasion began, as both Russia and Ukraine are two of the world’s biggest wheat exporters. As a result of the uncertainty around these vital agricultural exports, wheat prices have skyrocketed nearly 40% over the past two months, and Russia has added fuel to the fire with a temporary grain export ban against ex-Soviet nations.
While the start of 2022 has seen a sizable shift in value towards commodities, we’ll see if these prices stabilize while stocks and crypto recover, or if this year is the beginning of a new commodity supercycle.
(This article first appeared in the Visual Capitalist Elements)
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