Investing in Natural Resources and Rare Earth Minerals

Natural Resource Equities provide access to companies involved in the production, extraction, or processing of commodities and natural resources. "Rare Earths” go well beyond the domains of technology and finance. They involve international trade and politics.

Person analyzing data on multiple blue-lit screens in a control room. Displays show codes, maps, and graphs, suggesting a tech-focused mood. — Akin Investments, Solutions for a Complex World

While the U.S. stock market has many advantages, such as low unemployment, a strong economy, and profit growth, its recent performance has been dominated by a small number of mega-cap technology companies, known as the "Magnificent Seven." Commodities, especially precious metals like gold, have historically shown a low correlation with stocks and bonds, providing portfolio resilience during market downturns.

Additionally, unlike the concentrated technology-heavy equity markets, investments in natural resources provide exposure to tangible, real assets, which can enhance diversification. Emerging markets, especially in Asia, are experiencing significant economic growth, which is driving the demand for natural resources, as these nations continue to industrialize and urbanize, increasing the need for manufacturing, energy, and infrastructure development.

Natural Resources

Natural resources such as lumber, coal, or gold are the basis of all production.

Market participants can invest in natural resources via anything that has been mined or collected in raw form.

Natural resource investing appeals due to the impact of rising incomes, global infrastructure repair, political buying, and the store of value, especially metals.

Ways to invest include buying directly, trading in futures and options, buying mutual funds or exchange-traded funds, and buying individual stocks.

Reasons to Invest

Rising incomes: as incomes increase in developing countries, the demand for precious metals, building materials, and other natural resources tends to increase as well. Although a supply shock is still a potential risk with many resources, such as oil, rising demand generally leads to rising prices;

Global infrastructure and repair: developing countries have a huge appetite for gravel, lumber, steel, and other materials needed to build roads and other public works. This building spree is being prompted by population growth and increasing urbanization. Similarly, much of the infrastructure in developed nations require updating on a regular basis, and the more decades that pass before repairs and updates are made, the larger the eventual spending will be;

Political buying: a number of nations have begun buying up natural resources to ensure a consistent supply of crucial raw materials. This buying sometimes takes the form of political agreements and sometimes outright open market orders or foreign acquisitions, making governments another driver of demand;
Store of value: many natural resources act as a store of value, particularly metals. These resources become more attractive when inflation threatens investors.

Direct investment: investors can always buy a resource directly. This approach works well for smaller investments in precious metals, but it quickly becomes impractical when speaking about timber, natural gas, and other resources that require large storage facilities, which come with associated costs;

Futures and options: the contract-based approach to trading resources allows investors to leverage their dollars in a shorter time frame than storing a physical resource for months and months on end. These are great investments for experienced traders, but futures and options can be baffling to all but these specialists;

Exchange-Traded Funds: natural resource ETFs are just another example of how ETFs can help an investor gain broad market exposure with just a few investments. Natural resource ETFs all contain a different flavor of what they consider essential, so finding the right one can take some looking. The good news is that there will likely be one that fits your exact needs waiting for you to find it;

Stocks: ETFs are, of course, made up of stocks. Investors can cut out the middleman, and buy these natural resource company shares directly. These include mining stocks, forestry stocks, oil exploration stocks, etc. Generally speaking, there are two types of natural resource companies: majors and juniors. Majors offer a diversified play from extraction to processing to market sales, with possibly a dividend to boot. Juniors are a pure-play, and very sensitive to price movements. They usually offer no dividend, but can serve up large returns if the natural resource they control increases in value.

Rare Earth Elements

Rare earth elements (REEs), which comprise of only 17 elements from the entire periodic table, play a critical role to our national security, energy independence, environmental future, and economic growth. Many advanced technologies have components made from REEs such as magnets, batteries, phosphors, and catalysts. These components are used in various sectors of the US economy including health care, transportation, power generation, petroleum refining, and consumer electronics. Because of this critical role, interest and research into the recovery of REEs from end-of-life products and secondary sources such as coal and coal byproducts has recently increased.

CRITICAL MINERALS AND MATERIALS PROGRAM

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