It seems capital is beginning to flow back to the natural resource market. According to private capital tracker Prequin, investments in natural resources such as gold, silver, oil, farmland and other resources will most likely exceed $100 billion in 2019, following a poor year for the industry in 2018. Natural energy stocks, such as oil and gas, were responsible for $89 billion of funds raised in 2018. Metal and mining companies raised $2.5 billion. More than half of the natural resource investment funds surpassed their anticipated target projections.
During the first quarter of 2018, Orion Mine Finance closed its mining fund, the second largest natural resource fund in history. During the second quarter, economic uncertainty, especially in China, slowed down investments in the sector to under $5 billion. Natural resource fund managers held $238 billion in capital to be invested. At this time, 13 different natural resource investment funds are vying for $4.6 billion in private capital. If they succeed, 2019 could be a boom year for natural resource investors.
According to Norwegian-based DNV GL, confidence in natural resources such as oil and gas remains strong, despite global volatility. Seventy percent of the sector’s companies plan in increasing or maintaining their capital expenditure. One-third plan to expand their workforce, compared to only 10 percent in 2017. The industry is adjusting to unstable market forces and decreasing oil and gas prices.
As for natural metals, gold fluctuated in 2018 only to end on a bullish note, regaining its strength against the stock market. Investment managers now are viewing gold as a major investment choice due to economic uncertainty. One reason for this is the U.S. bond market, which has seen signs of erosion throughout 2018. The decline in U.S. Treasury yields still hasn’t bottomed out, making an investment in gold the far more attractive alternative.
Natural resources have historically been a compelling investment. Lumber, coal, and precious metals are needed in most industries. Countries around the world, especially emerging countries, have a growing need for these natural resources to grow their economy. Investment managers are paying attention.
Developing countries are experiencing rising incomes and population growth, which increases the demand for goods requiring natural resources. Many of these countries are engaged in infrastructure repair and have a tremendous need for lumber and other material. Some of these infrastructures haven’t been updated in a long time and now require major repairs and funding. Governments have become important purchasers of raw materials. Investment in these resources has become extremely attractive, especially with the possibility of pending global inflation in the near future. The needs for natural resources, whether precious metals, gas, or oil, makes them a natural hedge against inflation.
Natural resources are commodities, and as such are less affected by stock market volatility and can act as a natural buffer. While the negative correlation between stocks and natural commodities isn’t perfect, there is no doubt that natural resources will remain in demand, while stocks can soar up and crash at any time. That is why investments in natural resources will remain popular and increase in popularity with the ongoing potential of global economic chaos.