Lithium and gold were the only positively performing commodities in H1

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The second half of 2023 has officially begun, meaning it’s time for us to reflect on the commodities market so far this year.

In the first half of the year, lithium increased by 10.81%, making it the best-performing commodity and one of only two that recorded a positive return, the other being gold. Every other commodity that we follow lost ground during the six-month period as global manufacturing activity receded and China’s economy, historically a major demand engine, delivered a disappointing rebound after ending three years of pandemic lock-downs.

So why was lithium up in the first six months of 2023? In a word: batteries. The lightweight metal, the top performer in 2021 and 2022, is a key component of the boom in electric vehicle (EV) sales.

First-quarter EV sales suggested a promising year for the market, with a predicted global sales figure of approximately 14 million vehicles. This would mark a robust 35% increase from 2022, raising the global electric sales share to about 18%, according to the International Energy Agency (IEA).

Electric Vehicle (EV) Sales, 2010 - 2023

China, the world’s number three supplier of lithium after Australia and Chile, remains the largest EV market. Tesla’s production in the country rose nearly 20% last month, aiding in the company’s record-breaking quarterly sales. The Elon Musk-led manufacturer, our favorite EV play, delivered 93,680 cars from its Shanghai factory in June, a significant increase from the 78,906 units in the same month last year and 77,695 vehicles in May.

Other car companies are rapidly shifting from combustion engine models to EVs or hybrids, boosting demand for lithium. Lamborghini, for instance, announced last year that it plans to invest at least 1.8 billion euros ($2 billion) to create a hybrid lineup by 2024 and to introduce its fully electric model by the end of the decade. The Volkswagen-owned company reported that its final gas-burning models are now sold out for the remainder of production.

Hedging with gold

Gold was also positive in the first half, rising 4.93% and outperforming most other major assets. Its value was supported by a stable US dollar and continued demand from central banks. The yellow metal was also sought by investors as a portfolio diversifier, particularly during the mini-banking crisis in March.

Central banks may be nearing the end of their interest rate tightening cycle, with the Federal Reserve expected to hike rates possibly one more time, especially after June’s strong jobs numbers. The market consensus suggests a mild economic contraction in the US after the Fed pauses, along with slow growth in other developed markets.

Given its robust performance in the first half, gold is projected to remain supported in the second half of the year by factors such as India’s stronger economy, potential Chinese economic stimulus and continued hedging strategies. If the risk of recession persists, gold could see greater upside potential due to increased demand for high-quality, liquid assets, according to the latest report by the World Gold Council (WGC).

Gold Has Historically Performed Well During Recessionary Periods

(This article was written by Frank Holmes, CEO of U.S. Global Investors.)


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