~ By Ashutosh Gowli, Marketplace Specialist
Thank you to all readers of our first part of the 2023 Look Ahead Roundtable Series. So far we've covered Macro and Value Stocks. Today we continue with Commodities coverage with analysis and top ideas from five of our contributors.
Once again, the questions we asked were:
What are you expecting and/or looking for in your area of focus for 2023?
What is one of your top ideas for 2023 and why?
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Andrew Hecht of The Hecht Commodity Report: A continuation of choppy markets across all asset classes, with commodities trending higher because of supply-side issues created by the war in Ukraine and the bifurcation of the world's nuclear powers.
Idea: I expect gold to make new highs. I am bullish on silver and platinum. I expect lots of volatility in traditional energy markets, with crude oil and natural gas experiencing explosive and implosive moves.
Disclosure: The author always has positions in commodities markets in futures, options, ETF/ETN products, and commodity equities. These long and short positions tend to change on an intraday basis.
Gold Mining Bull (Steve Thomas) of The Gold Bull Portfolio: Despite the somewhat weak performance in 2022, there are many reasons to believe that gold will produce stellar returns in 2023. For a few reasons, buying gold and gold miners is a good bet to outperform.
New central bank purchases (especially from China)
Central banks around the world, particularly in China, Turkey and India, have been buying gold at a record pace. This trend has been going on for the past 13 consecutive years, but has accelerated. They have been increasing their gold reserves in recent years as a way to diversify their foreign exchange holdings and reduce reliance on the U.S. dollar.
According to the World Gold Council, year-to-date gold demand from central banks is at 673 tons, surpassing all annual totals since 1967.
I'm keeping a close eye on central bank gold buying in 2023, and from China. In November, the People's Bank of China announced that it purchased 32 tons of gold at a price of around $1,650 per ounce. This is the first time the central bank has announced a change in its gold reserves since September 2019. As deglobalization accelerates, I think nations like China will ramp up gold holdings - the de-dollarization narrative will grow in 2023.
Idea: Despite its stock price falling 40% this year, New Found Gold (NFGC) made significant progress in 2022 with the discovery of multiple high-grade gold deposits at its Queensway project. It's likely that more high-grade gold will be found in 2023. The company's stock may also have been affected by recent tax-loss selling where stocks are sold to offset capital gains liability, presenting a buying opportunity for long-term investors. While the gold explorer is not without its risks, New Found Gold has 50%-100% upside potential if it keeps making huge discoveries at Queensway.
Disclosure: Long NFGC
Laura Starks of Econ-Based Energy Investing: Lower natural gas prices near-term, stable oil prices, LNG facilities growth in Europe, some additional recovery in oilfield services, especially overseas.
Idea: I don't short stocks (so call this a "not buy") but for those who do, near-term natural gas prices, especially in US Appalachia, are likely to fall. Supply is trending higher, demand will not increase much until LNG plants are online, the NE (a natural market) is regulating away from natural gas and won't build pipelines anyway, and pipeline takeaway capacity in other directions (south and east) is near capacity.
Laurentian Research of The Natural Resources Hub: It's expected that 2023 will be a year of significant financial volatility and uncertainty. Many market participants hope either a pivoting Fed or some foreign dictators to intervene and save the day. However, the anticipated recession may be more severe than currently anticipated, while Big Brother may disappoint.
Amidst all the uncertainty, the natural resource sector may outperform again in 2023 as it did in the previous year. The global movement of decarbonization continues to rage unabated, and lack of increased capital investment from fossil fuel producers and miners is evident. As a result, the commodity super-cycle remains alive and well. If commodity prices flash crash during a recession in 2023, a great entry opportunity will be presented to those who had been wounded by the bursting mega-tech and passive investing bubbles.
Looking further ahead, the 2021-2031 decade may be marked by de-globalization, supply chain reorganization, famines, and wars. In light of these challenges, it may be wise for investors to increase their exposure to commodities and precious metals
Idea: Adventus Mining (OTCQX:ADVZF) had a less-than-stellar year in 2022 due to a decrease in copper prices and political turmoil in Ecuador. However, the company's prospects are looking bright for 2023 as the Curipamba project is being de-risked.
Adventus just signed an investment contract with the local government, which grants financial, tax, and legal incentives to the company and reduces jurisdictional risk that has deterred many investors.
Once the final permit is issued in 2Q2023, Adventus - fully funded - will begin constructing the high-grade, low capital intensity, and low-cost El Domo copper-gold mine. The mine, once coming on-stream in early 2025, is projected to generate ~$77 million in cash flow annually for the first nine years of production, with a 110% FCF yield based on today's market cap. There is also upside in the >25 exploration targets in the 215-sqkm VMS district.
While the final permit is yet to be received and there's project execution risk to consider, investors who are bullish on copper in the medium term may want to consider establishing exposure to this promising copper-gold mine as the world enters copper deficiency.
Disclosure: Long OTCQX:ADVZF
Joseph L. Shaefer of The Investor's Edge: I expect significant growth in 2023 from among the commodities vital for the Electrification Revolution. These are primarily the six metals and materials that provide the indispensable ingredients for the production and success of wind turbines, solar arrays, electric vehicles and the very large battery electric storage systems. These storage systems may one day replace the shaky power grid we now have that both moves and loses electricity, replacing it with safer and less intrusive regional shared systems. I have coined the mnemonic CCLANG for the first letter of the name of the six elements crucial to accomplishing these paramount achievements: Cobalt, Copper, Lithium, Aluminum, Nickel and Graphite. What could delay or derail my confidence that 2023 is the year to begin acquiring the very best companies that supply these materials? Very little. If oil and natural gas were to drop by half or more, it would likely delay the transition to renewable means of transportation, heating, cooling, and energy storage, but I see nothing that would derail it. You can see my most recent analysis of these “CCLANG”s ($)here.
idea: I seek companies or ETFs that give me the best exposure to the mineral or element in question. This means I might overlook the biggest producer if it's a state-controlled entity from a centrally-planned autocracy. I turn down Russian and even most Chinese companies unless they're a small part of the whole package. I want an ETF. I want it broad based, with few holdings of the truly huge mining firms – where poor showings for iron or some other metal might make for a bad investment. I have selected the ETF that best represents the metal I call “Doctor Copper, for the Health of the CCLANGs.” The Global X Copper Miners ETF (COPX) is perfect for my demands. Copper is the primary metal each company in COPX is exploring for and producing. COPX provides great geographic distribution, with companies that mine successfully in Chile, Poland, Australia, Peru and elsewhere. Among the Top 10 holdings only one is Chinese. Most are headquartered in the US, Canada, England, Japan, Australia and other places where the rule of law is strong. If you want to own copper, I believe COPX is your best choice.
Disclosure: COPX (Not yet owned; will be by Monday's open.)
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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.