This past week, a friend of mine gave me grief about using exchange traded funds (ETFs) for our allocation(s) to precious metals and other commodities. He argued that holding physical gold, in this instance, would provide much ‘purer’ diversification than a paper security traded on some exchange.
After all, if the goal is to hedge against the U.S. dollar why would you buy an investment which is denominated and traded in the very thing you are trying to avoid?
Well… when you put it that way.
The thing is, I suspect it would be an enormous logistical, accounting, trading, storage, and even regulatory nightmare for most investment firms and banks, just as it likely would be for us. Firms our size could potentially have hundreds of account relationships holding hundreds, if not thousands, of pounds of the shiny stuff. Seriously.
So, 12.625 ounces here, 0.500 1-ounce gold bars there and 33.333 coins held in various locations. Oh, and I suppose they would expect to want the so-called ‘spot’ price when we trade, as well as some form of insurance to cover their holdings. Heck, they might even want someone to occasionally ‘vault check’ their holdings to ensure they are still there and segregated to boot.
I know I probably would.
Imagine you are in the mood for a good cheeseburger. You can take your pick of the closest Whataburger/ In & Out/ Five Guys restaurant OR you can hop on a plane to some Michelin-starred place in France which kills its own cows, makes its own gruyere cheese and bakes its own bread. The burger at the first place might run you $10 or so.
As for the French restaurant, well, if you have to ask what the price is, you probably can’t afford it.
So, when it comes to investing in precious metals and other commodities, I would argue using ETFs is like going to the Whataburger/ In & Out/ Five Guys Burger. Convenient, but still pretty good. Sure, it might not be the absolute best cheeseburger in the world, but it is still better than no cheeseburger at all or, dare I say, the best piece of haggis.
My apologies to Robert Burns for the haggis sleight, but I am pretty certain he doesn’t care too much.
The reason why I decided on this topic today is because I will undoubtedly have to brush off this argument numerous times in the future. After all, I personally believe the commodity and natural resource story is unlikely to diminish in the near term.
In fact, it may even continue to grow. After all, it is just math and intuition.
According to worldpopulationreview.com, on April 23, 2026, the ‘current world population’ is/was just under 8.3 billion. It projects that it will grow to roughly 9.1 billion by 2038. That is an additional 800 million humans which will need to be fed, clothed, housed and shod. This is on top of the already existing 8+ billion of us who will likely still be consuming a lot of stuff.
Someone or something is going to have grow all of that food, chop down all of those trees, drill for all of those fuels, dig for all of those metals and, well, ‘process’ all of those animals. Now, I need a show of hands here, who here among us wants a new mine, solar farm, slaughterhouse, oil derrick, gas pipeline, data center, chicken house or something else along those lines in their backyard?
Having once had cornfields and cow pastures in relative close proximity to my bedroom, I have to admit those things aren’t all that bad. Kind of nice, actually.
The thing is, the demand for all types of resources, in aggregate, is expected to increase based on current trends. It is just a numbers game. For some, the increase in demand might be exponential. For others, it could be somewhat muted.
If history serves as a guide, and I am supposed to say it doesn’t necessarily, human ingenuity may determine a way to increase the supply of whatever the market desires, either that or develop viable alternatives. However, it might take a little time, and the world’s politicians could figure out a way to gum up the works and/or otherwise misallocate precious resources.
Let’s just say the end result could make boring old-school stuff like fertilizer, copper, wheat, silicon, gallium, potable water and/or bauxite extremely interesting to many. There are many, many more examples.
For instance, www.census.gov/popclock/ estimated the U.S. population was an estimated 342,450,018 on April 22, 2026.
- If we assume ‘our’ official population grows at an annualized 0.60% rate for the next 10-years, in a decade there will be slightly over 363.5 million people in our country.
- Obviously, that is an additional 21 million more mouths to feed and all of that jazz.
- Of course, I have to point out these are ‘back of the envelope’ estimates, and no one can predict the future with crystal clarity.
Still, the numbers are massive. My “pounds of food per person per day in the U.S.” Google search yielded an ‘AI overview’ of: “The average American consumes roughly 3 to 5.5 pounds of food per day…” So, let’s do that math.
- 21,110,740 people (the 10-year increase) * 4.25 lbs. of food (midpoint) * 365 days = 32,748,035,873 lbs. of food.
- As we should all know, there are 2,000 lbs. in a standard ton.
- As such, in 10-years, the U.S. food industry is going to have to generate an additional 16,374,017 tons of sustenance to feed us hungry Americans on top of what it currently does.
That is going to require a lot of energy, a lot of fertilizer, a lot of containers and a lot of ingenuity. Hey, that is just in the United States, which is already rich. Think about the potential growth in consumption in former ‘third-world’ countries, as their economies grow at an even faster relative rate than ours.
Essentially, unless something really awful happens, the global demand for basically everything has the real potential to increase significantly in the decades to come. Resource rich and agriculturally advanced economies could have a very prosperous time of it IF they can get out of their own way and let the market dictate.
Obviously, that is a big IF.
The upshot is this. While the recent discussion with my friend was about the physical custody of precious metals today, in the future, investors could very easily be asking themselves the same questions of grains, base metals, coffee, steel rebar, so-called ‘rare earths’ and a whole host of other natural resources and commodities.
The question then could very easily be: “where do you store your wheat, soybeans and zinc for your clients, Norris?” To that, I will likely answer something along the lines of: “you know, I am getting too old for this.”
And, you know what, I will be.
Thank you for your continued support. As always, I hope this newsletter finds you and your family well. May your blessings outweigh your sorrows on this and every day. Also, please be sure to tune into our podcast, Trading Perspectives, which is available on every platform.
John Norris
Chief Economist
About Common Cents:
Please note, nothing in this newsletter should be considered or otherwise construed as an offer to buy or sell investment services or securities of any type. Any individual action you might take from reading this newsletter is at your own risk. My opinion, as well as those of our Investment Committee, is subject to change without notice. Finally, the opinions expressed herein are not necessarily those of the rest of the associates and/or shareholders of Oakworth Capital Bank or the official position of the company itself. Opinions and forward-looking statements are subject to change without notice and may not come to pass. Past performance is not indicative of future results. References to market indices are for illustrative purposes only. Index performance does not reflect the deduction of fees or expenses, and individuals cannot invest directly in an index. Political and geopolitical events are referenced for general context and do not represent a recommendation or prediction regarding any specific investment outcome. Links to third party articles are provided for informational purposes only. Oakworth Asset Management LLC does not control, endorse or adopt the content, opinions or recommendations expressed on third party websites. Such content may be dated and may not reflect current market conditions. Readers should evaluate the information independently.
About Oakworth:
Oakworth Capital Bank, Member FDIC, Equal Housing Lender, provides commercial and private banking, wealth management and advisory services. Advisory Services, including investment management and financial planning, are offered through Oakworth Asset Management LLC, a registered investment advisor. Oakworth Asset Management LLC is owned by Oakworth Capital Bank. Investment products and services offered via Oakworth Asset Management LLC are independent of the products and services offered by Oakworth Capital Bank, and are not FDIC insured, may lose value, have no bank guarantee, and are not insured by any federal or state government agency. Because of the ownership relationship and involvement by Oakworth Asset Management LLC associates with Oakworth Capital Bank, there exists a conflict of interest to the extent that either party recommends the services of the other. For additional information about Oakworth Asset Management LLC, including its services and fees, visit adviserinfo.sec.gov.