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Commodities: The Top Asset Class of 2018 So Far

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Commodities: The Top Asset Class of 2018 So Far

Commodities: The Top Asset Class of 2018 So Far

Is the commodity supercycle coming back from the dead?

For now, such a claim could perhaps be considered both bold and premature – but there does seem to be some compelling evidence that is mounting to back it up.

The Asset Quilt

According to the most recent “Asset Quilt of Total Returns” put together by Bank of America Merrill Lynch, commodities are the top returning asset class of 2018 so far. The chart, which shows the total returns of asset classes over the years, has commodities at an annualized return of 22.7% year-to-date.

Right behind it is gold, which sits at 11.6% on an annualized basis:

RankAsset ClassTotal Returns (2018*)
#1Commodities22.7%
#2Gold11.6%
#3Equities (Emerging Markets)6.5%
#4Equities (S&P 500)6.3%
#5Equities (Europe, Australasia, Far East)5.9%
#6Global Bonds (High Yield)3.4%
#7Cash1.4%
#8Global Bonds (Investment Grade)-2.0%
#9U.S. Treasuries-5.7%
#10Real Estate-14.6%

*These returns are annualized in order to compare them with past years

Interestingly, commodities haven’t been on top of BAML’s chart since the years 2000 and 2002, which were at the beginning of the last commodity supercycle.

A Deeper Dive

Here is how commodities have fared from 2000 to 2018, based on annual returns. If the commodity sector keeps the pace for the rest of 2018, this will be the best year for the asset class since 2003.

Commodity performance 2000-2018

For various reasons, commodities have bounced back in the last three years.

The return of oil prices have helped to resurrect the sector. Ironically, the anticipated metal demand from renewable energy – which will be used to wean society off of fossil fuel consumption – is also a massive driver behind commodities right now.

Not only are base metals like copper, aluminum, and nickel essential for the “electrification of everything”, but lesser-known materials like lithium, cobalt, rare earths, vanadium, uranium, and graphite all play essential roles as well. They do everything from enabling lithium-ion batteries and vanadium flow batteries, to making possible the permanent magnets that generate electricity from wind turbines.

The environment for investing in commodities is the best since 2004-2008.

– Goldman Sachs, February 2018

Not surprisingly, here are how metal and energy commodities have performed since January 1, 2016:

CommodityPrice Change (Since Jan 1, 2016)
Vanadium459%
Cobalt277%
Palladium88%
Oil (WTI)86%
Nickel72%
Aluminum70%
Copper46%
Gold26%
Silver24%
Natural Gas21%
Platinum7%
Coal-8%
Uranium-40%

Some minor metals, like vanadium, have increased by over 400% in price in the last two years. That begs the question: how much room could there possibly be for price appreciation left?

Supercycle Potential

As Frank Holmes of U.S. Global Investors described in a recent post, the last boom was so prolific that investing in an index tracking commodities (such as the S&P GSCI) in 2000 would have resulted in the equivalent of 10% annual returns for ten years.

He also shared this chart, which shows the ratio in value between commodities and the S&P 500:

Commodities vs. Equities

In other words, commodities seem to be more undervalued than any time in the past 20 years, at least relative to equity indices such as the S&P 500.

Even if the above ratio comes back up to the median of 3.5, it’s clear that there could still be vast amounts of opportunity available in the sector for investors.

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Base Metals

Prove Your Metal: Top 10 Strongest Metals on Earth

There are 91 elements that are defined as metals but not all are the same. Here is a breakdown of the top 10 strongest metals and their applications.

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Prove Your Metal: Top 10 Strongest Metals on Earth

The use of metals and the advancement of human civilization have gone hand in hand — and throughout the ages, each metal has proved its worth based on its properties and applications.

Today’s visualization from Viking Steel Structures outlines the 10 strongest metals on Earth and their applications.

What are Metals?

Metals are solid materials that are typically hard, shiny, malleable, and ductile, with good electrical and thermal conductivity. But not all metal is equal, which makes their uses as varied as their individual properties and benefits.

The periodic table below presents a simple view of the relationship between metals, nonmetals, and metalloids, which you can easily identify by color.

The Periodic Table

While 91 of the 118 elements of the periodic table are considered to be metals, only a few of them stand out as the strongest.

What Makes a Metal Strong?

The strength of a metal depends on four properties:

  1. Tensile Strength: How well a metal resists being pulled apart
  2. Compressive Strength: How well a material resists being squashed together
  3. Yield Strength: How well a rod or beam of a particular metal resists bending and permanent damage
  4. Impact Strength: The ability to resist shattering upon impact with another object or surface

Here are the top 10 metals based on these properties.

The Top 10 Strongest Metals

RankType of MetalExample UseAtomic WeightMelting Point
#1TungstenMaking bullets and missiles183.84 u3422°C / 6192 °F
#2 SteelConstruction of railroads, roads, other infrastructure and appliancesn/a1371°C / 2500°F
#3ChromiumManufacturing stainless steel51.96 u1907°C / 3465°F,
#4TitaniumIn the aerospace Industry, as a lightweight material with strength47.87 u1668°C / 3032°F
#5IronUsed to make bridges, electricity, pylons, bicycle chains, cutting tools and rifle barrels55.85 u1536°C / 2800°F
#6Vanadium80% of vanadium is alloyed with iron to make steel shock and corrosion resistance50.942 u1910°C / 3470°F
#7LutetiumUsed as catalysts in petroleum production.174.96 u1663 °C / 3025°F
#8ZirconiumUsed in nuclear power stations.91.22 u1850°C / 3.362°F
#9OsmiumAdded to platinum or indium to make them harder.190.2 u3000°C / 5,400°F
#10TantalumUsed as an alloy due to its high melting point and anti-corrosion.180.94 u3,017°C / 5462°F

Out of the Forge and into Tech: Metals for the Future

While these metals help to forge the modern world, there is a new class of metals that are set to create a new future.

Rare Earth elements (REEs) are a group of metals do not rely on their strength, but instead their importance in applications in new technologies, including those used for green energy.

MetalUses
NeodymiumMagnets containing neodymium are used in green technologies such as the manufacture of wind turbines and hybrid cars.
LanthanumUsed in catalytic converters in cars, enabling them to run at high temperatures
CeriumThis element is used in camera and telescope lenses.
PraseodymiumUsed to create strong metals for use in aircraft engines.
GadoliniumUsed in X-ray and MRI scanning systems, and also in television screens.
Yttrium, terbium, europiumMaking televisions and computer screens and other devices that have visual displays.

If the world is going to move towards a more sustainable and efficient future, metals—both tough and smart—are going to be critical. Each one will serve a particular purpose to build the infrastructure and technology for the next generation.

Our ability to deploy technology with the right materials will test the world’s mettle to meet the challenges of tomorrow—so choose wisely.

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Base Metals

20 Common Metal Alloys and What They’re Made Of

You can’t find stainless steel, brass, sterling silver, or white gold on the periodic table. Learn about 20 common metal alloys, and what they are made from.

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Every day, you’re likely to encounter metals that cannot be found anywhere on the periodic table.

You may play a brass instrument while wearing a white gold necklace – or maybe you cook with a cast iron skillet and store your leftovers in a stainless steel refrigerator.

It’s likely that you know these common metal alloys by name, and you can probably even imagine what they look and feel like. But do you know what base metals these alloys are made of, exactly?

Common Metal Alloys

Today’s infographic comes to us from Alan’s Factory Outlet, and it breaks down metal and non-metal components that go into popular metal alloys.

In total, 20 alloys are highlighted, and they range from household names (i.e. bronze, sterling silver) to lesser-known metals that are crucial for industrial purposes (i.e. solder, gunmetal, magnox).

20 Common Metal Alloys and What They

Humans make metal alloys for various reasons.

Some alloys have long-standing historical significance. For example, electrum is a naturally-occurring alloy of gold and silver (with trace amounts of copper) that was used to make the very first metal coins in ancient history.

However, most of the common metal alloys on the above list are actually human inventions that are used to achieve practical purposes. Some were innovated by brilliant metallurgists, while others were discovered by fluke, but they’ve all had an ongoing impact on our species over time.

Alloys with an Impact

The Bronze Age (3,000 BC – 1,200 BC) is an important historical period that is rightfully named after one game-changing development: the ability to use bronze. This alloy, made from copper and tin, was extremely useful to our ancestors because it is much stronger and harder than its component metals.

Steel is another great example of an alloy that has changed the world. It is one of the most important and widely-used metals today. Without steel, modern civilization (skyscrapers, bridges, etc.) simply wouldn’t be possible.

While nobody knows exactly who invented steel, the alloy has a widely-known cousin that was likely invented in somewhat accidental circumstances.

In 1912, English metallurgist Harry Brearley had been tasked with finding a more erosion-resistant steel for a small arms manufacturer, trying many variations of alloys with none seeming to be suitable. However, in his scrap metal heap – where almost all of the metals he tried were rusting – there was one gun barrel that remained astonishingly untouched.

The metal alloy – now known to the world as stainless steel – was a step forward in creating a corrosion-resistant steel that is now used in many applications ranging from medical uses to heavy industry.

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