Asset TV Masterclass: Commodities & Energy

October 29, 2026 | (54 mins 51 secs)

Explore the forces reshaping commodities and natural resource investing, from rising demand for critical minerals to renewed interest in nuclear energy. In this Asset TV Masterclass, Ed Coyne and Douglas Daly discuss supply constraints, geopolitics, electrification and the investment outlook for copper, uranium, silver, gold and rare earths. They also examine how natural resources may provide diversification and inflation sensitivity within a broader portfolio.

Video Transcript

Michelle Yu: Hi, everyone. Welcome to our Asset TV Commodities and Energy Masterclass. I'm Michelle Yu. From surging demand for critical minerals to the resurgence of nuclear energy, commodities are taking center stage. The AI boom, geopolitical tensions, and a renewed focus on energy security are reshaping global supply chains and creating new opportunities across the natural resources sector. But with supply constraints and market volatility in the mix, where is the investment opportunity? Joining me to break down the trends shaping the sector and what they mean for investors are Ed Coyne, Senior Managing Partner at Sprott and Douglas Daly, Portfolio Manager at CoreCommodity Management. It's great to have these gentlemen in our New York studios, and I want to start with what's driving the renewed interest in natural resources and why now? Doug, hello and welcome.

Why Natural Resources, Why Now?

Douglas Daly: Thanks for having me. There are several trends right now that are really driving interest in the space. Many secular trends are building. One of the things that has sparked renewed interest is what's happening in the Middle East right now, including the war in Iran and the closure of the Strait of Hormuz. Several key natural resources, the lifeblood of the global economy, flow through that strait. This has renewed interest among countries and companies in examining their supply chains and their fragility. If a 20-mile strait can get shut down and, all of a sudden, 20% of seaborne oil is shut down as well, you need to look at your supply chains. That's been happening for many years, but more recent events have really done a number on countries rethinking onshoring, nearshoring and friendshoring production.

Historically, for natural resources, the cost of production was the most important factor. Nowadays, where something is produced is just as important because if it's being produced by an adversary or geopolitical rival, those supply chains become more fragile. We're seeing significant investor interest in the space, along with strong interest in nearshoring, onshoring, and friendshoring trends that support it.

The New Rules of Resource Security

Michelle Yu: There is no doubt that critical minerals have become a national security priority. How is geopolitics changing the investment landscape in this space, Ed?

Ed Coyne: I think what Doug said is spot on. It's creating more volatility. It's not just supply and demand. That was the original story. We need more of everything. There's not enough of it. The price has to go higher. That supply-demand dynamic was driving the original narrative for the space. It's about access. Not only do I have access to the particular material I need, but can I also refine it? Can I get it just in time when I need it? Where am I getting it from? It's no longer just a low-cost provider, as Doug said. Premiums are now being warranted and demanded, and actually paid for that access. Geopolitics is really waking up or reminding people that you just can't outsource everything, pay for it and then get it when you need it. You must have some ownership of these things. Having ownership of a real asset, or hard asset, is finally starting to show up on Wall Street as well.

Why Investors May Be Underexposed to Natural Resources

Michelle Yu: What does this mean for companies that are mining these materials? How does that impact them?

Ed Coyne: The miners are tricky because they are still a risk-on asset. There are two ways to think about the space. You have the hard asset itself, which, traditionally, if you think about things like gold, copper, or uranium, is an inflationary hedge asset. Gold, in particular, is more of a monetary metal, whereas uranium, copper and other metals are more true commodities. But that inflation hedge tends to rise with the overall cost of other products and services, as well as with inflation. What does that mean for the miners? In theory, that could be good for the miners because if the price of the material goes higher, the margin expands. The problem with miners sometimes is that extraction costs go up.

Labor, the quality of people and materials, and access to water and electricity are all factors in what it means to be a mining company. It's not an exact science: if the price goes up by 10%, the margins expand by 2½ times. It's a combination of the two. Having said that, we are seeing the miners start to get more of a bid. More people are starting to pay attention to them for the first time in a while. Over the last couple of decades, you've seen the hard asset itself do quite well, but the miners have been left behind. And people have had bad experiences with miners in the past, whether it's been the way the balance sheets have been managed, the way they've diluted value by issuing more shares, and so forth. Those types of things are starting to fall by the wayside.

There's better management in place. There's a more strategic focus in place. And you've got things like tax credits and government intervention coming in, providing financial floors for many of these companies to incentivize long-term capital to flow into the space. We are very positive about the miners right now. That said, they are much more of a risk-on asset. Things can go bump in the night, but miners are becoming more attractive across the ecosystem as prices for these materials continue to rise.

Michelle Yu: Doug, do you feel investors are underexposed to natural resources?

Douglas Daly: Absolutely, there are no two ways about it. Most investors access their equities in their portfolios through broad-based equity indices. If we looked at something like the S&P 500 50 years ago, roughly one-third of that index was in commodity-producing companies, companies that produce all the real stuff, as Ed is speaking to in the mining space, but also in energy and agriculture, the lifeblood of a global economy. Today, that's about 5% of the S&P 500. I think many investors might labor under the assumption that they have this exposure simply through diversified index funds. The truth of the matter is, they don't really have it today. And that's a big problem, because these are the companies that make all the real stuff that we use every day. They are incredibly inflation-sensitive assets to include in the portfolio, and there is a significant lack of exposure to companies in these sectors across investor portfolios.

Where the Supply Bottlenecks Are Building

Michelle Yu: I want to get into the details about where the biggest supply bottlenecks are for copper, uranium and rare earths. What can you tell us about that?

Ed Coyne: Bottlenecks are a hard thing to pin down, actually, because when we talk about the Strait of Hormuz, we're talking about different parts where particular materials are being refined. For example, uranium is refined in a very small part of the world, and we don't have access to it from a U.S. standpoint. Each of these bottlenecks will be unique, whether it's the raw material coming out of the ground to be refined or the refined material going to a factory or a facility where it needs to be consumed and used in a product. There are multiple pinch points in all these areas. Trying to pinpoint where those bottlenecks are occurring is very challenging. I would instead look at where that supply-demand dynamic is generally challenged, rather than focusing on just one particular aspect of why supply and demand are tight.

Copper's probably the least interesting to talk about, but it's probably the most fascinating in terms of the ecosystem and the narrative of what's going on in that space. This video today, for example, couldn't happen without copper. You can't thrift copper. You need it to move electricity from point A to point B. All those things are happening across different metals right now, particularly in critical materials. Gold is its own ecosystem and universe from a monetary standpoint, but I would argue even silver has really shifted from being a precious metal, which it is by definition, to a critical material. It's been consumed more than it's been produced for the last six years. We're in our seventh year now, where less is coming out of the ground than is being consumed or used for equipment, materials and so forth.

Those are the things I would be concerned with, rather than just the general movement or the bottlenecks, from a discovery standpoint, a manufacturing standpoint, and an end-user standpoint. Those are always going to be there in some way, shape or form. It's very difficult to say, "Hey, I can fix this particular bottleneck here and have more access to it." It really comes down to how much we are consuming of the particular metals, and then what is the true demand for those metals? And we see demand skyrocketing, frankly, in a lot of these areas of the marketplace today.

AI, Electrification and the Race for New Supply

Michelle Yu: Let's talk about a subject matter known as artificial intelligence. I think everyone has a hand in that topic these days. AI, data centers and electrification are transforming demand for energy and critical materials. How is that all happening, Doug?

Douglas Daly: It goes to Ed's point on copper. You can't have all those things without copper. It's incredibly important. We are seeing a similar surge in demand, driven in part by recent trends. We already had increasing demand for copper, just growing global populations and things, demand for commodities rises over time, generally speaking. Then you have this bolt-on effect from these new trends, EVs, electrification, AI, data centers, infrastructure, all of a sudden, this surge in demand. What's interesting is that in the mining space, we don't see the same investment in new supply. That's one of the key points. Copper is the poster child for that problem: we know we need more of it. We know we're going to use and consume more of it. It's irrelevant to Ed's point, but we're not investing in greenfield supply.

You're seeing improvements in technology to help marginally, leaching technologies and things to extract a little more around the margins, brownfield expansion of existing mines, but not a major investment in new mines. That is a key factor in balancing supply and demand, but it's a long process. A copper mine can easily take 15 years to go from discovery to production. These commodities are not light switches. All these things take a long time. Even if we had invested the amount we needed 10 years ago, we still wouldn't be seeing the fruits of it today, and we didn't make that investment. Copper is really the most extreme example where everyone sees this supply-demand mismatch, but we don't really see much investment to remedy it going forward. But that's broadly the case in many commodities today. We see a supply-demand mismatch going forward, with demand ever-increasing and no investment in supply, which points in one direction for material prices.

Building Critical-Mineral Supply Chains Beyond China

Michelle Yu: From a global standpoint, China dominates the rare earth supply chain. Where do you see opportunities for this outside China?

Ed Coyne: I think it's going back to the U.S., and I say going back because people forget that two and a half decades ago, or so, we were the primary producer of rare earths. But in the pursuit of greater efficiency and cost-consciousness, we outsourced it, allowing others, particularly China, to produce it, and then we would buy it back from them because people don't want it in their backyard. That's probably the hardest thing for everyone to really get their arms around: I know I need copper, uranium, rare earths and all these different metals, but do it somewhere else. No one's going to give up their cell phones or keep burning just oil and gas for electricity, which we're going to do for a very long time still, by the way, but they don't want this in their backyard.

That was always the problem. We're now waking up to the reality that we do need it in our backyard if we're going to have independence and access and eliminate some of these pinch points. If we're going to do all that, we have to have it in our backyard. That's just part of the reality of securing these materials in the future. In areas like the U.S., the government is investing in some of these companies and effectively providing a financial floor. Now, I'm not saying that's good or bad, but what it's telling you is where capital is flowing. If you start tracking where capital flows, that's usually a pretty good indicator of where future returns are likely to come from. We're seeing that in the U.S. market.

We see that in our northern neighbor, Canada, and in Australia. Australia is becoming a bigger part of the ecosystem. When you look at where we're investing our capital, Australia, Canada, and the U.S. are the primary regions where it's flowing and where our investments are happening. We have a fund that is ex-China. It's everything but China for that reason: capital is flowing away from China because it's been largely the low-cost provider. Going forward, we think the premiums that many of these companies are seeing today will continue. We like where the capital's going. We think it's going into those three areas that we talked about: the U.S., Canada and Australia. Outside of China, that's where we're seeing opportunity.

Michelle Yu: I want to get your thoughts on this. Where do you see it outside of China?

Douglas Daly: I would have to agree with that. We see significant mining activity in Australia, Canada, and here in the U.S., especially for rare earths. Going back to those earlier trends in nearshoring and friendshoring, China dominates 90-95% of refined rare earth elements because it dominates the refining process, as Ed said, we didn't want it in our backyard decades ago, so we outsourced it to China. Now you can't build a fighter jet, a missile or all sorts of civilian and military technologies without those rare earths, and all of a sudden China can say, "We're not going to export them anymore." We do see the same things. We're seeing capital flow into these more friendly nations to bolster the supply of increasingly critical resources that the U.S. and the rest of the world need outside of China.

Michelle Yu: Looking across commodities, what would you say are the most compelling supply-demand opportunities out there right now?

Douglas Daly: Copper is one of the more extreme ones. Rare earths and critical minerals are also of great interest. We're even seeing it in the energy space. The world needs more energy. And one of the things that we have long believed at CoreCommodity and included in our strategies that utilize equities is energy from all sources. Energy demand was already growing; then you layer AI on top of it, along with data centers and infrastructure, and it explodes into the demand growth you're seeing.

It's going to come from all sorts of sources, not just traditional sources like natural gas, which will be a huge part of it, but also renewables, alternatives and uranium for nuclear. It's an all-of-the-above situation because, across industries, we have not seen meaningful investment in new supply. It's not just copper; it's across those industries. And we feel that as the world needs more of it, we're going to be a little less picky about where we get it from. It's going to be an all-of-the-above solution.

Michelle Yu: The topic of nuclear energy is making quite a comeback. Everyone's talking about it. What do you think is behind this resurgence, and where do we see uranium in all of this?

Nuclear’s Revival Is Rewriting the Uranium Story

Ed Coyne: Uranium is the feedstock for a nuclear reactor. What's interesting about uranium is that it accounts for far less than 10% of the total operating budget for running a reactor. The price is almost secondary when you consider building and running these reactors and creating a 24/7 baseload energy source. That's probably the number one key: renewables certainly have a place in the marketplace. That's what you're seeing with rare earths and silver, with solar panels. The problem is they're not a 24/7 baseload energy source. Oil and gas, 24/7 largely, but there are environmental concerns with oil and gas that you don't get with the clean energy that's produced through nuclear. Uranium is experiencing a resurgence on both the conservative Republican and more liberal Democratic sides.

Both sides of the aisle understand that, to Doug's point, we need more energy, period. Take something like silver, for example. Silver is a precious metal, but it has crossed over to the critical material side of the ledger to the point where even the U.S. government put it on the critical material list as a mandatory metal that we need to have more access to for all the reasons we know with reflective technologies, solar panels and so forth. And it's very hard to thrift that because you get the law of diminishing returns with that. You go full circle and come back to uranium, and what's going on in the nuclear space: you've got all these reactors that a decade ago were going to be shut down.

That's the first thing. We're not going to shut them down anymore. In fact, we're extending their operating licenses by 10 to 15 years. That's all great, but do we have the supply, the feedstock, to keep those reactors running? Right now, that supply-demand imbalance is real, and it's growing. Number two, you have regions like Southeast Asia, with China, in particular, building 27 new reactors as we speak. Currently, 75-80% of France's electricity comes from nuclear power. You see all these different parts of all these worlds. India, for example, is also looking to add reactors to its grid to generate more electricity. And that's the big traditional reactors we know. This is putting more pressure on supply and demand. Then you take it a step further and look at the small modular reactors that people are talking about.

These are more regionalized reactors that can operate small factories and small communities. We've seen that already operate at the military level, on military bases, offshore, on submarines, on aircraft carriers and so forth. These small micro and modular reactors are already functioning in that way. They're now being commercialized and brought onshore to run hospitals. Imagine a hospital that never has a power outage. All those kinds of things are happening. This is all great for solution-based thinking, but the reality is that the supply-and-demand imbalance is real, and we don't have nearly enough core uranium to feed all the reactors currently operating, let alone the new ones coming online. We like the long-term direction of uranium price discovery because of the supply-demand imbalance.

Michelle Yu: Can you break down for us how a uranium contract cycle works? What does it mean for miners?

Ed Coyne: There's a term market, which is what a power company will pay for future production, because they want to make sure they have their feedstock to keep the reactor running. The term "market" is usually 10% to 30% higher than the spot price, depending on where you're in the market cycle. The spot price is what it's trading at today. It's effectively like a futures market. The energy companies are putting long-term bids with miners, directly saying, "When X amount of pounds comes out of the ground, we will pay you for that future production at this current price, which is usually elevated above the current spot price." That's how the energy companies do it.

The spot price is just a general market price. Any investor looking to take a position in uranium today is paying that price. They don't necessarily need it for a reactor. They just want exposure to it because they believe, as we do, that price escalation is real and will continue over time, given supply-and-demand dynamics. There are effectively two markets: the term market and the spot market.

Michelle Yu: I think the next question our audience would like to know is how trade policies, export controls and resource nationalism are reshaping investment opportunities. What are you seeing out there, Doug?

Douglas Daly: It goes back to some of what we talked about earlier and some of what Ed was discussing earlier with critical minerals and rare earth elements with China. We're seeing nearshoring, onshoring, friendshoring, but also countries building strategic stockpiles, realizing that in addition to shoring up the supply chains for these critical minerals, critical resources that we need, we also need to build inventories and have strategic stockpiles for times when those supply chains do break because we can't have gaps in our supply of these things. Also, as we discussed earlier, the government is investing in producers of these goods, making it easier for companies to start producing goods we may no longer produce here, such as rare earths. Those trends are certainly pushing it, as well as the rearmament of militaries.

Given all the conflicts going on, there's going to need to be rebuilding of all those armaments. That's going to draw on supplies as well, further exacerbating shortages of key materials and the need for those supply chains to function to keep that moving. That's yet another thing we're seeing pushing demand for these things, bringing things back home and building manufacturing facilities, infrastructure and everything you need to support that as well.

Copper’s Shift from Economic Bellwether to Structural Essential

Michelle Yu: We talked a little bit about copper in the beginning, and I want to go back to it. Copper has long been viewed as an economic bellwether here. How is electrification changing its investment story on that, Ed?

Ed Coyne: There's a perception versus reality narrative taking shape here. Perception was always that copper would go up or down with the strength or weakness of the economy. The term “Dr. Copper” was used frequently. If the copper price is shrinking, that's a bellwether that the economy is slowing, and vice versa. If the price is going higher, that growth is happening. That to some degree is still true, but the reality is, regardless of the direction today where the economy's going, the long-term demand for future build out, forget what's happening in India and China and electrification of the globe, just look at what's happening in the U.S. If you tear down a 10-story building and you build a 30-story building, you don't need three times more copper, you need 10 times more copper because all the electrification components of a modern building versus an older building, it's a three, four, five times to the amount of copper you would need in that as well.

This whole idea that copper's the bellwether of the economy's direction is, frankly, a bit of an outdated model. The whole Dr. Copper narrative is fun to talk about, but the reality is that we need it regardless of where the economy goes over the next 1 to 3 years. We think Wall Street's getting it wrong right now. And that's a hard thing to say out loud, but they still create that volatility, and they still trade against, well, the economy's doing this, or copper's going to do that or copper's doing this, or the economy's going to do that.

That model is falling by the wayside. Those are opportunities for an investor to say, "I know the long-term trend in how much more copper we need." The easy to mine copper has already been found. Going and making new discoveries hasn't really happened. As Doug said, it can take up to 15 years from discovery to consumption or production. We like that long-term trend. We think the narrative that copper is largely dictating market direction is behind us, and you have to widen your lens to see what's really happening with copper's supply-and-demand dynamics today.

Michelle Yu: Let's now discuss how attractive natural resource equities are today, particularly in terms of valuations, cash flow and capital discipline. Where do you see that, Doug?

Douglas Daly: I think we've spoken about the fundamental backdrop across a number of commodities, copper, energy, et cetera. What's interesting is that, given that backdrop, when you look at the companies themselves, valuations are still well below those of broader equity markets and, relative to their own historical ranges and averages, not atypical. They are well within normal valuation bands, yet on the free cash flow front, we're seeing companies spin off free cash flow like they haven't in many years. Debt levels are lower; interest burdens are lower. Going into the COVID pandemic, there was a lot of borrowing, spending and producing at all costs. It didn't matter what margins you were making. The pandemic came, and, especially in the energy sector, a number of years before the pandemic, there was a change in approach in the mining sector. The focus shifted to margins and debt reduction

The companies that made it through the pandemic really got their act together, and it was a complete 180 in how they ran these companies. It was, we're not going to spend CapEx on new production because our shareholders don't want us to. We're going to pay off our debt with the cash we're generating. We're going to pay back our investors, whether through dividends or stock buybacks, and focus on improving margins and developing our lowest-cost reserves. That was really the big change in that mentality. Despite all that and despite the strong fundamentals of both what is produced and the companies that produce it, we think the valuations on those companies are very reasonable today, especially relative to many other areas of the market, and they look very attractive. What you're seeing is that if a company can't expand its reserves, because a resource company depletes its reserves every day through production, it needs to add to those reserves in some way.

M&A activity is picking up in the space because those valuations have been depressed. If you are the CEO of a mining company and need to increase your reserve base, and you look at some of your smaller competitors and their valuations, it makes perfect sense that you would want to increase your reserves by buying your competitors. Your shareholders are okay with that as opposed to developing a new mine from scratch. The problem is that it increases that company's slice of the pie, but it doesn't increase the pie's overall size. It's not increasing global supply, and it gets back to what we've been discussing: that in the broader sense, we are not increasing the supply side of things quickly enough to keep up with the demand, but the companies are getting by doing acquisitions, M&A activity and things like that because those valuations look attractive to them, and that's the only way they can increase supply for themselves right now.

Silver’s Expanding Role in the Energy Transition

Michelle Yu: We discussed copper. Let's get back to talking about silver for a moment here. Silver is both a precious and an industrial metal. How important is its role in the energy transition?

Ed Coyne: It's extremely important. We were talking before today's recording, and I live in the middle of the state of Florida, which has traditionally been pine barrens for turpentine, which was over a hundred years ago, and more recently, citrus groves. More of these citrus groves are now being converted into solar farms. We've got major companies looking for a hundred-year land lease to take down all the citrus because citrus just isn't as profitable as it once was. Economics ultimately drives everything. The solar movement is advancing, and solar energy efficiency is improving. The technology behind battery packs that can store some of the energy generated by the panels and so forth is critical. To your point, the energy transition is real. It's happening. The original narrative that we're transitioning away from oil and gas is false.

I think Doug said it best: we need everything. We're going to have oil and gas in our lives for another hundred years. I know that doesn't seem popular to say out loud, but the reality is we need it, and we also need clean, sustainable energy like solar and wind. And we also need 24/7 baseload energy like nuclear, and we need copper to tie it all together. This isn't going away anytime soon, but silver's become its own personality. I think for the longest time, gold, being, call it the big brother or big sister, always overshadowed what silver could do. Silver had such a massive price move up last year. It wasn't because it was necessarily playing catch-up with gold; gold was also doing well, but because it was being repriced away from being a precious metal, which it still is, toward being used, consumed, or viewed more as a critical material.

I think silver has its own story to tell within the critical material energy transition narrative, and it's just getting started. Many companies have looked for ways to thrift and use less silver because silver has gotten more expensive. But what they're finding is that solar panels, if you thrift them, aren't as durable. They don't absorb as much sunlight. They're not as effective. You're penny-wise, pound-foolish, then when you start building those thrifted panels. It's a very difficult precious metal to replace. Silver is a required material for technologies such as solar panels today.

Natural Resources’ Role in an Inflation-Ready Portfolio

Michelle Yu: When it comes to a diversified portfolio, what role should natural resource equities play in all of this, Doug?

Douglas Daly: As we talked about earlier, it's a part of the portfolio we think is severely lacking in investor portfolios, because those broad-based equity indices have so little representation of commodity producers. But I talked to many investors, and especially with some of the data points we've gotten recently, inflation has become a huge concern. Natural resources and commodities are the most inflation-sensitive things you can put in a portfolio. We think a broad-based approach is critical, covering all those bases, because, as we've been talking about, there are so many things we need more of, and we're going to need more of, yet there has not been an adequate supply response from the market in terms of delivery. We think investing broadly across them is the right approach. That's the way we've done it at CoreCommodity for many years.

You're spreading it around, covering all your bases and building a strong foundation with broad-based, diversified exposure. You could then layer tactical trades on top of that; that's where we see more specific bets. We include uranium in our portfolios, but it's a small space, as I'm sure Ed knows. There's only so much of it we can incorporate in a broad-based portfolio, and that's where you could certainly see a tactical allocation to something that you have more conviction in. But we think that for inflation protection, having that foundation set with a broad-based approach is the way to go.

Michelle Yu: Critical materials can be volatile. How should investors approach these investments over the long term?

Ed Coyne: I think you said the answer with the word long-term. If you look at the performance patterns of these metals on a quarter-to-quarter and even year-to-year basis, we prefer to look at gold on a rolling 36-month basis. You're going to be very disappointed and very stressed out. Gold's probably my favorite example because people think of gold as an unproductive asset; it has no income and no dividends. It's a rock on a shelf, but it's been one of the better-performing monetary metals for sure and one of the better-performing investments for sure for the last two and a half decades. Having that long-term view and understanding the bigger picture is crucial. Some of the best investors in the world are history majors because they understand the long-term view of how things shake out over time, and they don't get caught up in the day-to-day, month-to-month, quarter-to-quarter, or, frankly, even calendar-year-to-year basis.

I think that for someone to have a successful experience investing in critical materials, they need to broaden their lens and view volatility as an entry point. And when there's a big run-up, maybe not as exit points, but as ways to trim back. I always tell people, focus on the weight in your portfolio, whatever that weight is. If you decide it's 10%, 5%, 20%, whatever weight you think is appropriate relative to the rest of your portfolio, focus on that number. Don't look at the return; look at the weight in your portfolio. When that becomes underweighted because other assets are doing well, and it's not, then you need to add to it.

And when it becomes overweight, you need to trim it back. It's the old sell high, buy low mentality. When you have that discipline, that's really the best way to invest in and think about the critical material space. Because, as I mentioned earlier, if Wall Street's got it wrong with copper, you start chasing these returns, it's a very easy way to lose a lot of money very quickly. You do need a wider lens. You do have to embrace and accept that volatility is part of the ecosystem. And then, if you think longer-term, that's where I think you'll have a successful outcome in allocating this to this space in your portfolio.

Michelle Yu: Moving on now to discuss how natural resource equities stack up against gold, commodity futures, TIPS and REITs as inflation hedges.

Douglas Daly: I couldn't agree more with Ed’s point. You have to be long-term in your thinking about this space, and that can be very difficult to do, especially when you have tech stocks ripping the way they've ripped for the past number of years and commodities broadly have been more or less sideways. But over the long term, one of the big advantages of natural resource equities is inflation protection. It's that strategic inflation sensitivity of natural resources that is one of the driving factors for including it in a broadly based, well-diversified portfolio. When you look at it, you might have an allocation of 5-10% to real assets or something in that space to try to get you that inflation sensitivity and some of that diversification. It's important that what you put into that bucket is the most inflation-sensitive thing you can put in the bucket.

And when you look at what is most inflation-sensitive in the space between REITs, natural resources, TIPS and so on, commodity futures are the most inflation-sensitive, followed by natural resource equities by a pretty wide margin. You're talking about natural resources having a beta to inflation between 5 and 6. What does that mean? That means every dollar you invest in it historically would've provided inflation protection for that dollar and another four or five dollars of your portfolio. You're trying to get the most bang for your buck on inflation. That's where commodities, natural resources, really come in. You can maximize the utility of that smaller allocation that you hold in a portfolio. That's why we often compare them to people who often use REITs and other things. REITs are great. Many of the infrastructure investments are great. They just don't have the inflation sensitivity that you can get with commodities and natural resources.

Michelle Yu: We talked copper, we talked silver. How about we talk about gold now? Gold continues to attract investor attention. What are the key forces driving gold and silver prices? You touched upon that before, but can you go into a little bit more detail?

Physical Gold vs. Gold Miners: Different Roles, Different Risks

Ed Coyne: Gold's a fun one to talk about. At Sprott, we have over four decades of experience in precious metals, with gold and silver as the foundation of our firm, and $55 billion in assets under management. That's a big chunk of who we are and what we do. Gold is a true monetary metal. When you think about what central banks are doing with it, they're effectively backstopping the debt that they're continuing to take on, issuing more debt. The U.S. is issuing more 10-year Treasuries, and we're using the capital we raise from them to pay interest to other parts of the world. We're not even touching the debt. Gold is really backstopping the debt levels we're taking on, and other central banks are taking on debt globally. And then you think about it from a money-printing standpoint.

Look at the purchasing power of a dollar, a Big Mac, for example, not to pick on McDonald's, I'm a fan of a Big Mac, but it's up 150% in the last five years. That's crazy to think about. It's no longer the value that people once saw it as. Gold continues to march forward. Gold continues to do its job. Now, as I mentioned earlier, when looking at things on a three-year rolling basis, gold is probably the poster child for that. You have to look at gold over long market cycles, because if you look at it day-to-day, you will go crazy, since it can go up or down 1, 2, 3, or 4% in a given day, and no one really knows why. Of course, it's purchases and redemptions and so forth, but it's hard to get your arms around why that's the case on any given day.

What I always like to say is that a lot of things happen around gold that affect its price but have very little to do with its value. And I take it a step further and say the price of gold doesn't really change. It's all the other assets around it that are changing. Are they valuable? Are they not valuable? Are they going up in price or going down in price? Gold is a perfect asset when you consider how it operates within a portfolio. I always tell people, "Look, gold's the original alternative investment." I've been using that tagline for over a decade, but what's true is that when you think about alternatives in general, what's an alternative supposed to do? It's supposed to perform differently at different times relative to the rest of your portfolio.

That's exactly what gold does over time. When you look at central banks, for example, the way they have used gold so effectively is proof in action that gold is a true monetary metal. Gold is a true diversifying metal, and it's a very low-cost liquid way to help hedge a portfolio. I'm clearly a big fan of gold. It's like cheeseburgers, though, not too many, not too much, just enough works well in a portfolio, but not having any gold in a portfolio would be a mistake. You just don't truly understand investment history if you don't have some gold, but you need a little in there to really get value from a diversification standpoint.

Michelle Yu: The way that you compared gold and cheeseburgers, that's just on a whole other level. I love it. We're going to switch gears now and talk about which natural resource allocations make sense for investors concerned about inflation and where they should allocate capital.

Douglas Daly: It goes back to the earlier point where you're going to use a smaller portion of your portfolio, 5-10%, we generally see in real assets and things. But the question of where you pull it from is super relevant today, especially since tech stocks have been moving higher and higher. Many people are reluctant to sell those things. We've generally seen those funds come from broader equities. They are equities at the end of the day. One of the advantages of natural resource equities over commodity futures alone is that you don't face as many ownership frictions. They are equities, they have an equity-like return profile and a more commodity-like risk profile. You're getting a little bit of the best of both worlds historically. We do think it makes sense to diversify that equity exposure with exposure to these types of equities.

As we mentioned earlier, less than 5% of the S&P 500 is in commodity-producing companies. It's a way to expand your equity exposure to include more of the companies that make the real stuff we use every day. More recently, I've spoken with a number of investors who are looking to reduce their fixed income allocation as well, given everything going on with rates. I think there you can make the argument for taking from bonds as well. These natural resource equities have historically been dividend-yielding, with dividends around 3% over time, higher than most sectors of the equity market. We think it could make sense there as well, especially given that inflation risk is higher today and the sensitivity of fixed income to inflation, having a negative relationship, you might want to reduce some of that exposure and put it towards something that's going to hedge more of that inflation sensitivity in your book.

Michelle Yu: Doug, what is the most overlooked opportunity in natural resources right now?

Douglas Daly: Broadly, it's interesting. Across the board, we've talked about much of what's happening on the supply-and-demand front. I think what is most overlooked is space in general. I keep going back to those valuations that are so depressed relative to broader equities and to their own history. They're not trading at very high levels, but we know supply and demand aren't going to be fixed anytime soon. The prices for these things are likely going up. To Ed's point about devaluation and things with gold, we very strongly agree on the gold front as well. This is real stuff that holds its value over time. It's interesting. In our strategies, we're extremely diversified. We hold on average about 300 names. The total market value of those 300 names we hold is roughly $6 trillion, the total market capitalization of those 300 names across all sectors that produce the real stuff we use each and every day.

That's not much higher than the market cap of a company like NVIDIA. Not to pick on NVIDIA. It's a great company. They have innovative products, but that's one company whose single type of computer chip is valued almost as much as 300 of the world's best natural resource companies combined. There's a glaring mismatch in the valuation somewhere. Broadly speaking, there's a lot of opportunity. We certainly see pockets of opportunity. We are active managers. Gold is a really interesting area at these prices, with gold miners' margins at $1,800-$1,900 an ounce. Gold, even after a recent hit, is still trading at around $4,100. Those are fantastic margins for a gold miner, and it's an interesting way you can play the metal versus the miner, given where prices are. Within the set, I think we see a lot of opportunity in gold miners and gold broadly, but zooming out, we do think the entire space is trading at significant discounts to many other parts of the equity market.

Michelle Yu: That's a great thing that you just brought up, and I want to get your thoughts on this, Ed. When choosing between owning physical gold and owning gold mines, how should investors view each?

Ed Coyne: The investor has to look at themselves, think about their portfolio, and ask themselves why. Why do I want gold, or why do I want gold equities? At Sprott, we always talk about the physical market first. You want to use the physical market as your low-cost, liquid way to hedge your portfolio. The more opportunistic your portfolio looks, meaning more equities in general, the more physical gold you want, along with some cash and fixed income. We're seeing some people who maybe had a 40% weight in fixed income take it down to 35% or 30%, and some of that is now going into the gold market. We're seeing institutions, advisors and individuals do that. The physical market is really a low-cost, liquid hedge in a portfolio.

Depending on what the rest of your portfolio looks like, how opportunistic it looks, you'll want to use that physical gold to offset some of that volatility you're going to experience in your equities. Gold equities are very different. They're a business. They have management. In many cases, they operate in very risky or volatile jurisdictions. Access to capital can be constrained. There are many challenges faced by a gold miniing company, but when they get it right, and to Doug's point, when the margins are expanding, when it costs $1,800 or so to pull it out of the ground and gold is over $4,000 an ounce, when it's right, it's really right, and it's fun to be part of that. That is a risk-on allocation. Physical market gold and gold miners are very different investments. The physical market is your risk-off diversification allocation. The miners are more of a risk-on opportunistic allocation. The two can live in a portfolio, but if you're new to investing, I always encourage people to start with the physical market first.

Michelle Yu: Let's talk about opportunities as we're winding down this masterclass. I want to talk about the biggest opportunities and risks we're seeing for critical material investors over the next several years. Where do you see that?

Douglas Daly: Copper is a big one. We've been talking about it pretty much the whole time here. I think there's tremendous opportunity in copper and copper miners. I would agree with Ed on the gold front. It's something we've been talking about quite a bit at Core. You see oil prices go up, so the market assumes rates need to rise because inflation's rising, and gold goes down. Well, that means we're borrowing money at higher rates. We have to refinance an ever-growing pile of debt at higher rates that should be supportive of gold, yet, to Ed's point, in the day-to-day, sometimes you get these movements that don't quite make sense. And when you look out to the longer term, I think there's strong opportunity in gold for both the miners and the physical metal. In all these cases, the physical commodity and the producers' equity are good ways to play it at these levels.

The mining space, particularly gold miners, is really interesting. As well as that, I think one of the things we included, which I briefly mentioned earlier, was some renewable and alternative energy, including uranium. What we've seen with the conflict in the Middle East is how critical a single choke point is to traditional oil and gas. I think that's going to push countries that aren't blessed with domestic oil and gas reserves, as we are here in the U.S., to explore alternatives such as solar and wind, and to find other ways to get energy that aren't dependent on those fragile supply chains. I think there's strong support for renewable and alternative energy, in addition to all the other forms of energy that we're going to need. To Ed's point, you need base power production that comes only from traditional energy sources, natural gas, nuclear, what have you, and an additional intermittent supply from renewables. But again, I think it goes to an all-of-the-above approach here.

The Bottom Line: Reassessing an Underowned Asset Class

Michelle Yu: When it comes to this space in commodities, what is the biggest message you want investors to take away from today's masterclass?

Douglas Daly: I think it's just how underallocated you could be, whether that's to physical commodities or to natural resource equities in your portfolio. Many investors don't really look beyond traditional allocations. As Ed mentioned, I've heard several people taking that 40% fixed income down to 35% or 30% and looking for alternatives, real assets, other things to fill that gap and try to generate returns for the portfolio while dodging some of that fixed income risk. I do think it's worthwhile for investors to explore other options for their portfolios, and that commodities and natural resources could be a good fit.

Michelle Yu: Where can active management add value to these natural resources?

Douglas Daly: In the natural resource equity space, one of the things we do is always provide broad-based diversified exposure, but we're active managers. I think active management is crucial in commodities, particularly in commodity futures, to mitigate some of the challenges of owning them. But in natural resources, active management allows us to tilt the portfolio to skate toward where the puck is going. As I mentioned earlier, gold and gold miners have been an area we've been focused on, particularly of late, given the higher margins, and that's been doing quite well. As gold has had a little trouble of late, the miners are still holding up, which is not typical. To Ed's point about being a risk on an asset: when gold goes down, gold miners usually go down even more. We haven't seen that so far this year because the margin buffer is so high. There's an interesting aspect there as well.

Michelle Yu: Tariffs always play a role in some of this. Where are you seeing tariffs play in the investment outlook at all?

Ed Coyne: I'd say access. At the end of the day, they're more of a distraction than anything else, because the reality is that we flip-flop a lot on what the tariffs look like, what they mean, which countries they apply to, how long they last, and when they go live. All it does is create uncertainty and volatility in the marketplace. That is a perception versus reality. That affects the price of a particular material, such as copper, uranium, or rare earths, but it has nothing to do with the long-term value. If I'm listening to this masterclass today, my takeaway would be: don't get caught chasing the price of something; focus on the long-term value of an investment. Is this value going to be here a year from now, three years from now, five years from now?

Is uranium going to be something that's going to be valued in five years as a feedstock for more nuclear reactors? Are we going to need to consume more copper? You look at some of the largest data centers; one of the biggest in the U.S. is in Illinois. Why is it happening in Illinois? Illinois is one of the biggest producers of nuclear energy in the U.S. If you can start to widen that lens and look at all those things, then you get a little bit better story or better response to why you're thinking about this to begin with.

Michelle Yu: Doug, how much of a tailwind is government stockpiling in all of this?

Douglas Daly: It's certainly going to be a tailwind going forward as governments are focused more now on building more key strategic stockpiles of things that we haven't had before. If you look at something as simple as crude oil, we've been releasing crude from the Strategic Petroleum Reserve to try to counter developments in the Middle East and bring prices down from where they were. We're starting to reach operational levels on that crude oil inventory at the strategic petroleum reserve that are going to become problematic. There's only so low those inventories can go operationally before you can't really use the reserves there. That's not just a U.S. story; that's happening all over the world. Those will have to be refilled at some point. That's going to be supportive of things like crude oil and petroleum products.

When we get to the point where we start refilling those stockpiles and those reserves, they have to buy those from somewhere. They're going to buy those from the companies that produce them, similar to key strategic reserves of other metals, and establish new ones because we've recognized gaps in our supply chain. It's going to be just yet another source of demand support, in addition to all the others we've been discussing.

Michelle Yu: Do you think there are any overlooked metals that could become compelling opportunities in the future, say, in the next couple of years?

Douglas Daly: Certainly, some of the critical minerals and the rare earths that Ed was speaking about as well. It seems we are finding new uses for metals. We find the new metals we need, and rarely is it the case that we no longer need anything. We're going to need copper for the foreseeable future and probably for the rest of human existence. We're going to need copper, aluminum, steel, and iron ore, but some of these more specialized metals, rare earths, and other materials with interesting, specific uses are much harder to get. Many of those metals, a lot of metals, aren't something you go and refine directly. They're the byproducts of other things. They depend on demand for other things like zinc.

There's a lot of interesting stuff in the rare metal space. Lithium's another one that's going to be interesting moving forward, as we need to address the intermittency of some renewable power sources. You need batteries, you need things to store that energy when the sun's shining and then use it when you need it when the sun is not shining, or the wind's blowing. There's a lot of interesting stuff there. We saw lithium prices come down a bit after a boom-and-bust, but there's going to be a lot of support for lithium going forward as well. A lot of these more specific metals that maybe we're not all as familiar with are seeing the industries around them grow. I think there are many interesting opportunities there.

Michelle Yu: Very interesting. This was quite a conversation on commodities in this space. I'm Michelle Yu. Thank you so much for watching Asset TV.