Investment opportunities in commodities: investor sentiment on the rise

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The newsletter is a roundup of financial news, investment status, and other financial trivia, giving you the insight you need to manage your money in any economic situation.


 

With growing energy challenges, geopolitical tensions, and the need to shift to renewable energy sources, raw materials have become a key element of future strategies. The recent surge in investor sentiment towards commodities reflects a growing recognition of their role as key components of diversified portfolios, especially in times of inflationary pressures and supply chain disruptions.

Did you know that AI data centers consume significantly more energy than traditional data centers, with a search on ChatGPT consuming 6–10 times more energy than a traditional Google search?

What will we need to generate such high levels of energy in the future?

Generating the high amount of energy that will be needed to power future AI data centers requires a multi-faceted approach involving different energy sources, advanced technologies, and energy efficiency strategies. But the problem I want to highlight here is the neglect of the raw materials sector, which enables the further development of technology that is so “energy-wasteful.”

NVIDIA is an extremely important player in the field of artificial intelligence. When we compare Nvidia and the energy sector in the context of the SP500, we find a shocking thing. At USD 2,600 billion, Nvidia’s market capitalization is now more than USD 900 billion larger than all the companies in the energy sector of the S&P 500. In total. The net profit of the energy sector is $128 billion, while that of Nvidia is $43 billion.

Source: Charlie Bilello

 

How will the need for energy efficiency be reflected in commodity prices?

There are many signs in the raw materials market that the bull market remains intact. The relative value of commodities compared to equities remains historically extremely cheap and has stabilised at historically low levels in recent years. This graph shows the relationship over the last 50 years, with the curve at the highest levels representing expensive commodities relative to the value of equities, and the curve at the lowest levels representing cheap commodities relative to equity markets. Commodities are extremely undervalued.

Source: Incrementum

 

Last month, commodities saw the largest monthly increase in allocations to this segment in the last 20 years.

Source: BofA

For the first time in four decades, gold outperformed bonds in the safe, long-term investment segment. This is due to the recent jump in the gold price combined with weak government bond yields.

Source: Bloomberg

 

What is the sentiment towards gold as an investment?

Money managers have become the most optimistic about gold in more than four years, with gold prices climbing to a new record earlier this week.

Source: Finance Yahoo

And silver…

Breakthrough of the silver/gold ratio on the weekly timeframe. This is usually a very bullish signal for precious metals markets. You can see the silver/gold ratio curve and compare it to previous years.

Source: Tradingview

 

One of the most important areas of demand for silver at the moment is the solar industry. It accounts for an increasing share of silver consumption. Silver consumption for solar PV systems in 2023 is 193.5 million ounces of silver, an increase of 64% compared to 2022 and a 4x increase over the last decade.

Source: Incrementum

 

The newsletter “Financial insights and trivia” does not constitute an investment advisory service. Its content does not constitute recommendations to buy or offers to buy, but is intended to inform the public about developments in the financial field. Past returns are not a guarantee of future returns. Please consult a financial adviser for advice.

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