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 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 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.
No. 2 Agriculture Inputs
I’m sure you have heard how expensive food prices are getting. After all, wheat prices are up 50%, corn is up 30% and Soybeans are up 30%.
These are three primary staples in the global food supply. But why are these prices going up so much?
For one thing, the war in Ukraine is pressuring the market as Russia and Ukraine account for over a quarter of the world’s wheat supply.
Instead of attempting to buy hundreds of pounds of wheat, here are the top commodities to invest in agriculture.
- Wheat ETF: Teucrium Wheat Fund (ARCA: WEAT)
- Fertilizer Company: CF Industries Holdings (NYSE: CF)
- Agriculture ETF: Invesco DB Agriculture Fund (NYSEARCA: DBA)
Fertilizer leader CF Industries expects U.S. plantings to rise to near historic highs this year, suggesting the industry is in high demand.
Commodities to Invest in No. 1 Energy
With Russia playing a critical role in the global energy market, sanctions on the nation’s exports are driving energy prices to near historic highs.
Higher energy prices are pushing record profits and cash flow to big oil and gas companies. For instance, the U.S. natural gas hit $9 this week for the first time since the global financial crisis. In fact, natural gas is outperforming the top commodities to invest in so far this year, up 135%.
If you want to profit from higher energy prices, here are the top oil and gas commodities to invest in.
- Oil & Gas ETF: SPDR Oil & Gas E&P ETF (NYSE: XOP)
- Natural Gas ETF: United States Natural Gas Fund (NYSE: UNG)
- Oil & Gas Company: Devon Energy Corp. (NYSE: DVN)
On the other hand, you can gain exposure to the rising energy costs by investing in an Energy ETF such as the Energy Select Sector SPDR Fund (NYSE: XLE). Likewise, the XLE ETF’s top holdings are Exxon Mobile (NYSE: XOP) and Chevron (NYSE: CVX), the two largest gas and oil companies in the U.S.
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.
Pete Johnson is an experienced financial writer and content creator who specializes in equity research and derivatives. He has over ten years of personal investing experience. Digging through 10-K forms and finding hidden gems is his favorite pastime. When Pete isn’t researching stocks or writing, you can find him enjoying the outdoors or working up a sweat exercising.