Commodities: To Short, or Not to Short? [Chart]
Comparing “Dogs of the Dow” inspired strategies over the last decade
The Chart of the Week is a weekly Visual Capitalist feature on Fridays.
Over the last week, we have received a wide variety of reactions from our audience regarding the Periodic Table of Commodity Returns that we published last Thursday from our friends at U.S. Global Investors.
The most interesting email came from Brad Farquhar, the Executive Vice President and CFO of Input Capital, a Canadian-based agricultural streaming company. In his email, Brad attached a chart summarizing the cumulative returns using a long/short commodity strategy where he imagined going long on the worst performing commodity of the previous year, while shorting the best performing commodity.
For example, the long-only portfolio would have invested in natural gas in 2007, because gas was the worst performing commodity in 2006 with a -43.9% return. The short-only strategy would have shorted nickel in 2007 (betting that nickel would drop in price) because it was the best performer of 2007 with 145.5% returns.
On a cumulative basis (re-investing money from each year), the long-only strategy returned -0.9% compound annualized growth between 2007 and 2015, while the short-only strategy brought in 12.4% annualized returns.
A 50/50 hybrid (50% long, and 50% short) gave us the equivalent of 9.6% returns each year.
Inspired by Brad’s analysis, we did our own variation of this “Dogs of the Dow” type of exercise to look at these long and short commodity portfolios in a slightly different light.
We analyzed five portfolios (100% long, 75% long, 50% long/short, 75% short, and 100% short) for the average annual return, volatility, and number of years with positive returns.
Here’s the results:
The best performing portfolio was 100% short, with an average annual return of 14.5%. The 75% short portfolio had nearly as good of returns at 13.1%, with the lowest volatility (using standard deviation) at +/- 17%.
Both the 100% short and 75% short portfolios provided positive returns in 7 of the last 9 years. Meanwhile, going long was much more risky. A 100% long portfolio had gains in only 4 of 9 years, with a huge standard deviation of +/- 55%.
Over the time period in question, energy commodities killed portfolios with “long” exposure. In 2011 and in 2015, the worst performer of the previous year (natural gas and oil respectively) was also the worst performer the following year, creating terrible returns for the long-heavy portfolios.
Oil, for example, was down -45.6% in 2014 and then was also down -30.5% in 2015. Not a very effective strategy.
What will be a better trade in 2016: shorting the best performing commodity of last year (lead), or going long on nickel, the worst performer of 2015?
The Periodic Table of Endangered Elements
90 different elements form the building blocks for everything on Earth. Some are being used up, and soon could be endangered.
The Periodic Table of Endangered Elements
The building blocks for everything on Earth are made from 90 different naturally occurring elements.
This visualization made by the European Chemical Society (EuChemS), shows a periodic table of these 90 different elements, highlighting which ones are in abundance and which ones are in serious threat as of 2021.
On the graphic, the area of each element relates to its number of atoms on a logarithmic scale. The color-coding shows whether there’s enough of each element, or whether the element is becoming scarce, based on current consumption levels.
|C||Carbon||Plentiful supply / serious threat|
While these elements don’t technically run out and instead transform (except for helium, which rises and escapes from Earth’s atmosphere), some are being used up exceptionally fast, to the point where they may soon become extremely scarce.
One element worth pointing out on the graphic is carbon, which is three different colors: green, red, and dark gray.
- Green, because carbon is in abundance (to a fault) in the form of carbon dioxide
- Red, because it will soon cause a number of cataphoric problems if consumption habits don’t change
- Gray because carbon-based fuels often come from conflict countries
For more elements-related content, check out our channel dedicated to raw materials and the megatrends that drive them, VC Elements.
Mapped: The 10 Largest Gold Mines in the World, by Production
Gold mining companies produced over 3,500 tonnes of gold in 2021. Where in the world are the largest gold mines?
The 10 Largest Gold Mines in the World, by Production
Gold mining is a global business, with hundreds of mining companies digging for the precious metal in dozens of countries.
But where exactly are the largest gold mines in the world?
The above infographic uses data compiled from S&P Global Market Intelligence and company reports to map the top 10 gold-producing mines in 2021.
Editor’s Note: The article uses publicly available global production data from the World Gold Council to calculate the production share of each mine. The percentages slightly differ from those calculated by S&P.
The Top Gold Mines in 2021
The 10 largest gold mines are located across nine different countries in North America, Oceania, Africa, and Asia.
Together, they accounted for around 13 million ounces or 12% of global gold production in 2021.
|Rank||Mine||Location||Production (ounces)||% of global production|
|#1||Nevada Gold Mines||🇺🇸 U.S.||3,311,000||2.9%|
|#5||Pueblo Viejo||🇩🇴 Dominican Republic||814,000||0.7%|
|#6||Kibali||🇨🇩 Democratic Republic of the Congo||812,000||0.7%|
|#8||Lihir||🇵🇬 Papua New Guinea||737,082||0.6%|
|#9||Canadian Malartic||🇨🇦 Canada||714,784||0.6%|
Share of global gold production is based on 3,561 tonnes (114.5 million troy ounces) of 2021 production as per the World Gold Council.
In 2019, the world’s two largest gold miners—Barrick Gold and Newmont Corporation—announced a historic joint venture combining their operations in Nevada. The resulting joint corporation, Nevada Gold Mines, is now the world’s largest gold mining complex with six mines churning out over 3.3 million ounces annually.
Uzbekistan’s state-owned Muruntau mine, one of the world’s deepest open-pit operations, produced just under 3 million ounces, making it the second-largest gold mine. Muruntau represents over 80% of Uzbekistan’s overall gold production.
Only two other mines—Grasberg and Olimpiada—produced more than 1 million ounces of gold in 2021. Grasberg is not only the third-largest gold mine but also one of the largest copper mines in the world. Olimpiada, owned by Russian gold mining giant Polyus, holds around 26 million ounces of gold reserves.
Polyus was also recently crowned the biggest miner in terms of gold reserves globally, holding over 104 million ounces of proven and probable gold between all deposits.
How Profitable is Gold Mining?
The price of gold is up by around 50% since 2016, and it’s hovering near the all-time high of $2,000/oz.
That’s good news for gold miners, who achieved record-high profit margins in 2020. For every ounce of gold produced in 2020, gold miners pocketed $828 on average, significantly higher than the previous high of $666/oz set in 2011.
With inflation rates hitting decade-highs in several countries, gold mining could be a sector to watch, especially given gold’s status as a traditional inflation hedge.
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