Lithium, Gold: Best Performing Commodities in 1H23

Lithium and gold, essential minerals in the current economy, are the commodities that performed the best in 1H23. Increasing efforts toward the electrification of the global vehicular fleet and the good performance of the US economy mainly drive these metals’ performance, as well as other important factors that will continue supporting growth. 

According to the World Gold Council (WGC), gold outperformed some of the most important investment assets like the MSCI EM index and US Cash. WGC’s reports showed that gold prices increased 5.4%, closing June at US$1,912.24/oz, surpassing MSCI EM’s performance of 3.5%, US Cash’s of 2.3% and US bonds’ 2.1%. 

As monetary policy transitions from tightening to on-hold, with expectations of a mild contraction in the US and slow growth in developed markets, WGC’s analysis suggests that gold is likely to remain high in 2023. While potential economic challenges might impact consumer spending in the West, a comparatively stronger Indian economy and potential economic stimulus in China could provide local demand support for the metal. Additionally, despite indications of cooling inflation, stock market volatility and 'event risks' like geopolitical risks and financial crises are expected to favor hedging strategies, including gold. Furthermore, market consensus regarding slightly lower interest rates and a weakening US dollar could reduce gold's opportunity cost for investors, aligning with past cycles.

In Mexico, gold production plummeted by 26% year-on-year in June 2023, marking the steepest decline since May 2020 when the COVID-19 pandemic halted operations in Mexican mines, resulting in a 37.6% decrease. Compared to May, production fell by 20%, a drop attributed to labor strikes in key national mines.

Lithium and the Energy Transition 

In the case of lithium, the metal reported a price increase of 10.8%, making it the best-performing commodity in 1H23, according to Mining.com. The increasing sales of EVs are the main driver for price increases as countries/regions like China and the US, as well as the EU, are looking to reduce greenhouse gas emissions.  

According to the International Energy Agency’s (IEA) latest Global Electric Vehicle Outlook, EV sales surpassed 10 million in 2022. This number is projected to experience notable growth of 35%, reaching a total of 14 million units in 2023. This surge in EV sales is anticipated to constitute approximately 18% of the entire car market. This increasing demand is expected to impact lithium prices in the long term. 

While Chile, Australia and China stand as the world's primary lithium producers. Experts contend that Mexico has not fully tapped into its lithium potential. Despite government initiatives to designate lithium exploitation as a state-exclusive endeavor and the establishment of the lithium-exploitation company LitioMx, Mexico has not yet produced even a gram of lithium carbonate. During discussions about forming an Organization of Lithium Producing and Exporting Countries in Mexico, Raúl García, President, CIMMGM, stated that the country might not commence lithium production within the next 15 years.