2022 has so far been the year of commodities. Oil, natural gas, wheat, soy, uranium, lithium, gold, silver, and base metals like copper, aluminum, and nickel have all caught the attention of investors. Commodities react to supply and demand. And demand for many commodities is rising faster than supply.
Commodities are real assets that can perform well during times of inflation. Gold and silver have long been seen as hedges against a recession. And copper's use cases have only grown in recent years, partially because of electric vehicle applications.
Royal Gold (RGLD 0.35%), iShares Silver Trust (SLV -0.74%), and First Quantum Minerals (FM 4.06%) are three ways to invest in gold, silver, and copper, respectively. Here's what makes each security a great buy now.
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Follow this yellow brick road to a lustrous portfolio
Scott Levine (Royal Gold): Breaking through the $2,000-per-ounce threshold last month, the price of gold is notably higher than this time last year, when it was priced at about $1,720 per ounce. Despite the metal's apparently high price, however, shares of Royal Gold, a leading royalty and streaming company, can be found in the bargain bin to the delight of value and gold bugs alike.
Unlike mining companies, royalty and streaming companies, like Royal Gold, are not directly involved in day-to-day mining operations. Instead, they can be characterized as financiers occupying a particular niche. In exchange for the up-front capital that royalty and streaming companies provide, they receive the right to acquire the mined minerals for a set price -- usually lower than the current market price -- or to receive a portion of the mined minerals. Although Royal Gold has interests in other minerals, including silver and copper, the yellow metal is the thing that's contributing most significantly to its coffers. In 2021, for example, gold represented 73% of Royal Gold's revenue.
Mining companies require considerable piles of green to dig the yellow stuff out of the ground. Investors digging into their financials, consequently, will often find the companies weighed down in debt. Because of Royal Gold's business model, however, this royalty and streaming company doesn't find itself in the same situation. The company reported in February that it's currently debt-free and has over $143 million in cash on its balance sheet.
Geopolitical tensions remain high, and the price of gold may very well rise in the coming weeks. But Royal Gold's value transcends a temporary spike in the market price of the yellow metal. The company has demonstrated that it consistently outperforms the price of gold, making it a compelling consideration for those looking to add some glitter to their portfolios.
And with shares trading at 35.9 times trailing earnings, a sharp discount to their five-year average P/E multiple of 56.6, it seems like now is a particularly good time to pick up the stock.
The simplest way to invest in silver
Daniel Foelber (iShares Silver Trust): Through no fault of its own, silver's reputation has been somewhat tarnished in recent years. Silver's fundamentally strong investment thesis became gilded in the shimmer and shine of meme stock mania in 2021. It was then that silver briefly reached $30 an ounce as Reddit traders realized it had a surprising amount of short interest and looked to profit off that position. That moment has been dubbed the "silver squeeze."
Since then, silver has been stuck in a range of roughly $20 to just over $26 an ounce. It's currently at the high end of that range, just under $26. And there's reason to believe it could break out from here.
Gold Price in US Dollars data by YCharts
Silver has many of the same advantages as gold. Silver tends to retain its value better than fiat currencies that can move based on the economic situation, monetary and fiscal policy, and the financial position of the sovereign nations they are backed by. Inflation weakens the buying power of a U.S. dollar, whereas silver and gold are more resistant to inflation because they're valued based on supply and demand, not the U.S. economy.
Aside from jewelry and silverware, silver also has practical use cases in industrial applications, electronics, medicine, photovoltaic technology used in the solar industry, semiconductors, and several other industries.
Instead of paying a premium to the spot price by purchasing silver bullion, one of the simplest and safest ways of investing in silver is through the iShares Silver Trust, which has over $14.6 billion in assets under management and only charges a 50-basis-point fee. The fund's sole purpose is to reflect the price of silver. Investors looking to mix in silver with some gold or copper mining stocks such as the ones Scott and Lee mention could consider a silver exchange-traded fund now.
Quantum Minerals is an overlooked miner
Lee Samaha (First Quantum Minerals): Although best known for its copper assets, First Quantum is also somewhat of a play on gold and nickel. That's good news, because there's an investment case for all three metals.
The case for copper is based on long-term demand growth because of its use in the clean energy transition -- wiring in electric cars, renewable energy, and electrification. Meanwhile, supply challenges could emerge because of the difficulty of obtaining permits and uncertainty around the regimes in Peru and Chile. Furthermore, nickel prices soared in the wake of the war in Ukraine because Russia is one of the leading producers of nickel products. Finally, gold is seen as a safe-haven investment in turbulent times, and there's no shortage of geopolitical issues to worry about right now.
Within this scenario, First Quantum stands well placed with key assets in the relatively stable countries of Panama and Zambia. On top of that, the company is set to ramp up its production of copper, gold, and nickel over the next three years, and it has expansion projects in place in its key assets. First Quantum Minerals is an excellent way to play a positive view on the outlook for long-term copper prices, nickel, and gold.
