10 Best Commodities To Invest in 2022
Commodity investments have surged in popularity as one of the most lucrative ways to grow wealth. With the advent of financial apps, investors can now trade commodities virtually, making it easier than ever to build a portfolio. In today’s economic climate, characterized by rising inflation and weakening currencies, commodity trading is not just an opportunity but a necessity. Global events such as the Russo-Ukrainian war have exacerbated inflation, making commodity investments even more attractive as a hedge against economic instability.
This comprehensive guide will explore the top commodities to invest in 2022, providing you with the knowledge needed to make informed investment decisions. By the end of this article, you’ll have a better understanding of how to diversify your portfolio and protect your financial future through smart commodity investments.
Commodities in a Nutshell
Commodities are essential goods that maintain uniform quality regardless of their origin. These goods, ranging from precious metals to agricultural products, are divided into two categories: hard and soft commodities. Hard commodities include metals like gold, aluminum, and copper, as well as energy products like natural gas and crude oil. Soft commodities, on the other hand, are goods that are grown, such as soybeans, corn, wheat, and cattle.
Commodities as an Inflation Hedge
Inflation is a general rise in prices without coordination. It’s an economically crippling system that commodities can safeguard your business from. This protection is possible because commodity prices rise as inflation rises.
According to the latest report from the Bureau of Labor Statistics, the annual inflation rate in 44 major countries worldwide was 8.6% in May, its highest level since 1981, as measured by the consumer price index.
As demand for goods and services increases, so do their prices. The cost of materials for producing these goods and services also goes up to match the inflation acceleration.
Beyond this explanation, commodities act as a hedge in the following ways:
- They have intrinsic financial value.
- They create diversified investment opportunities.
- Their values increase as global prices for goods increase.
10 Best Commodities To Invest in 2022
Let’s get down to business. Inflation is in full swing, and you need intelligent investments. For that, we have compiled a list of the top commodities to put your money into;
1. Gold
Gold has been a cornerstone of wealth for over 5,000 years, valued as a currency, store of value, and hedge against inflation. Its long-term stability makes it a reliable investment, even when other assets falter. Gold’s value typically increases as prices rise, making it a valuable addition to any investment portfolio.
In other words, no investment or item can come close to gold’s mega, long-term track record. Throughout history, gold has always maintained its purchasing power and value globally.
Despite gold’s short-term volatility, its long-term value has always remained stable.
The value of gold always increases as prices go up. Investors benefit immensely from this commodity advantage and channel their investments into this time-tested asset. Gold is also a lucrative investment commodity because of its indirect relationship with the dollar.
But how should you invest in Gold? That’s a Golden question (no pun intended).
With ISA Bullion’s Gold trading platform, you can invest in the gold market from anywhere in the world, instantly via our mobile app. We facilitate real-time gold trades with seamless executions on the go while offering physical possession of gold, insurance, and vaulting services for you.
Download the ISA Bullion App for iOS or Android now.
2. Silver
Next to gold, silver is a premium safe harbor investment. It’s one of the most traded metals on the market. It has been used extensively by humans for thousands of years and is an essential material for industries worldwide.
Silver jewelry is also one of the hottest trends in fashion, while silverware finds itself at the dining table in posh restaurants throughout the world. In addition to its use in industry and as a precious metal commodity, silver also plays a vital role in energy generation, medicine, electronics, and photography.
Investing in silver is an excellent option, thanks to its uniqueness as a precious metal as well as industrial. To benefit from silver investments, you can begin trading it directly from the ISA Bullion trading App now.
3. Lithium
Shockingly, lithium shares similar demand levels with gold and silver. It’s not a precious metal, but it’s become a necessary component for various technological advancements. These range from smartphones to electric cars. Global output for this year is expected to exceed demand to 650,000 tonnes on its way to 1.47 million tonnes in 2027.
With this money-making potential, you can invest in lithium using securities and ETFs. These options grant access to a commodity on track to become an industry giant.
4. Copper
Copper production is expected to increase by 4.3% this year with a price target of $10,100.
Copper gives you an excellent hedge against inflation both directly and indirectly. In the former case, you can hold the commodity in its physical form with options including copper coins, bullion bars, and futures. Indirect investments mean you’ll have it as copper ETFs, copper miner stocks, or copper mutual funds.
5. Aluminum
There are numerous reasons to invest in aluminum. Its current value projection is $2126/t with a long term projection of $2,276/t by 2026. Either way, you have multiple options to invest in, with aluminum stock investment a safe place to start. For example, you may begin by investing in mining stocks or stocks of aluminum producers like China.
Suppose that doesn’t interest you; trade aluminum ETFs. These have an excellent return and carry less risk than aluminum futures.
6. Petrol
Oil is a quality asset to put your money into. Global demand for 2022 has been reduced to 1.7mb/d but there’s an expected increase of 2.1bd/d in 2023. You can gain directly by purchasing options contracts or futures. For secure alternatives, you can use mutual funds and ETFs, which are simple and safe.
For indirect investment, buy stock in individual oil companies. These can be either upstream, midstream or downstream companies. You can also buy shares of a mutual fund.
7. Gas
Thanks to necessity and availability, gas is currently a mainstream commodity. Gas investments are expected to rise from $131 billion to $171 billion in 2024. The financial markets have also created multiple ways to invest in gas. First, you can invest in natural gas ETFs. These can be natural gas company ETFs or Natural gas price ETFs. It’s a perfect option for investment newbies as it has less risk and no complications.
You can also buy MLP stocks. Master Limited partnerships come with tax benefits for profits. In practice, earnings are only taxed when distributed to general and limited company partners.
8. Coal
Coal is prone to a steady 10% investment increase with another 10% this year. Like other fossil fuels, you can invest in coal commodities using futures. The coal futures contract operates using a unique system where commercial users can hedge against market risk. With this opportunity, market speculators can profit based on the commodities’ value over time.
An alternative is to invest in a company that already mines coal. It would help if you went with a company with multiple coal reserves that operate in different locations. Considering this, there are three companies you can go with, i.e., BHP Group, Rio Tinto and Glencore.
9. Steel
In the wake of the pandemic, many items have become scarce. One of the items that have been hard hit with shortages has been the microchips used in automobile production, globally. As a result, major automobile manufacturers have had to decrease their steel spending or stop it altogether. But manufacturing fewer cars can not be the solution.
Therefore, steel is slated to be an exceptional investment in 2022. The reason? There is a high probability that steel prices will rise in the second half of 2022 due to the increased supply of microchips. With more microchips, more steel will be poured back into the auto industry, increasing its rarity and price.
10. Agricultural Commodities
Agricultural investments mean giving financial backing to food production, processing and distribution. According to the World Bank, prices are expected to increase by 20% this year. It could also go higher with a prolonged Russian war and further sanctions on the country.
There are multiple ways to achieve this ranging from agricultural ETFs to farm REITs. The ETFs grant diversified exposure to the agriculture sector. You can start with the VanEck Agribusiness ETF. It allows investors to invest capital in companies that derive at least 50% of revenue from agriculture.
Also, you can buy stocks in companies that support the agriculture industry. These corporations can be farm equipment manufacturers, crop distributors, or fertilizer sellers. Agricultural mutual funds that invest in agriculture and farming industries are another option. You must confirm if the funds are invested in agriculture-linked firms or commodities.
How to Invest in Commodities
Commodity investment happens in different ways depending on the commodity or sector. Given what we’ve discussed, here’s a better understanding of investment options;
Direct Investment
This investment system requires you to hold onto the biological raw material. You can sell these and get back your initial investment. Alternatively, you can hold onto the item and sell it for a higher price.
Investment Through an Online Platform
Online investments are an easy process for beginners and experienced investors. Interested parties can make financial decisions with access to global financial markets on the go from their mobile devices.
Furthermore, investors can trade their commodity in real-time by applying measures like limiting, stopping and taking profit orders, etc., directly from the app.
For instance, you can download the ISA Bullion app and begin trading gold and silver instantly at your fingertips. When you purchase Gold or Silver from us, we store it for you in our secure vaults. We also offer the facility of delivering you physical Gold and silver on special request.
Getting started on the ISA Bullion platform is super easy. You can download the app directly from here now.
Buy Stocks of Companies That Produce Commodities
Buying company stocks offers two significant benefits. First, company profit rises as commodity price rises. Also, the miner can increase production, increasing profit in the long run. You still must understand that the commodity industry is volatile and capital-intensive.
Your company of choice must also have a solid business model and profit. With these fundamentals in check, you can rest assured that the company won’t go bankrupt or use your investment unwisely.
Commodity Futures
This investment depends mainly on probability. As an investor, you get into an agreement with a second investor based on the commodity’s future price. You can use future contracts which sell commodities in the future for a predetermined price.
The futures market is not recommended for first-timers, given its speculative nature. Instead, it’s made up of institutional producers and consumers.
The Risk of Investing in Commodities
Commodity investment has advantages, but there are still some dangers to this financial opportunity. These include;
- Futures markets are difficult to predict
- Commodities like real estate are affected by factors like climate and natural disasters.
- Investors are exposed to fraudulent businesses.
Growth Tips for Investing in Commodities
Investment in commodities is all about getting the right advice and directives. We’ve done our research and developed these tips for investing the right way;
Set Clear Objectives
The truth about the investment is it’s a volatile one. Depending on the global financial situation, things can go up and down quickly. Before throwing your lot in, you need a clear understanding of what you’re trying to achieve.
Safety should be a priority in this case. A secure investment is impossible, but you can get a similar arrangement. Government-issued certificates are a durable option as they are one of the few US bonds operating with the gold standard. You can also go for AAA-rated corporate bonds from large, stable companies.
The next objective is income. Choose an investment option that’s in line with your targets. For instance, most retirees for government and corporate bonds have a steady income and less risk. Alternatively, you can choose short-term CDs beyond the stable AAA-rated options. If you’re looking for a more controlled situation, purchase preferred common stocks. These have a history of paying good dividends, so there’s every possibility of stable earnings.
Your final objective is capital growth. This increase is achieved by selling a capital asset for financial gain. Choose what capital growth asset works best from the numerous options. Blue-chip stocks are the safest choice with long-term growth potential. But, you can also choose growth stocks that might require weathering some financial storms.
Track Your Portfolio’s Performance
Since you’re just starting, financial monitoring is mandatory. This process guarantees you can make the necessary adjustments depending on the market situation. You can use online tracking services to monitor your portfolio. That said, you’ll have to know what kind of fees are expected and the required investment amount.
You can also monitor financial progress with personal finance apps. Tools like Count About and Stock Rover come with analytics features for studying the market. Also, you can use the app to calculate your monthly expenses and potential passive income. This information lets you review finances and make better plans.
If you’re feeling proactive, you can track the investments by yourself. Tools like Google Sheets and Excel can help you get this done. It’s back-breaking work, but you can adjust it anyhow you wish.
Diversify Your Investment Portfolio
Your investment range should go beyond stocks. It should include real estate investment trusts, commodities, and exchange-traded funds. Fixed-income funds can also be added to the mix for long-term diversification.
Conclusion
Commodities have an excellent investment potential and can protect you from inflation. With this article, we hope you will be able to use any of our top picks and build a hedge against financial uncertainty. For more information regarding tradable commodities, contact our team at ISA Bullion.
Happy investing!