In the realm of personal financial planning, commodities often get a bad name as being too risky, too speculative, and not an appropriate part of most portfolios. While precious metals present certain challenges under current conditions, the addition of natural gas stocks has merit. The shale boom, specifically the Marcellus Shale, has led to a recent upward revision in the expected supply of available natural gas by an impressive 26%. This may lead to near-term weakness in natural gas, but goes a long way to ensuring the viability of liquefied natural gas, or LNG, projects for years to come. Keeping in mind that thorough personal financial planning is not just about what will work today, exposure to precious metals and natural gas should be seen as a critical part of the process.
Silver and gold
Precious metals have been in a significant slump of late, with gold sliding and appearing to have room to fall. While industrial demand for silver has kept this metal somewhat more attractive, silver has shown weakness as well. Against this backdrop, Silver Wheaton Corp. (USA) (NYSE:SLW) remains my favorite play in metals. The company has over 1 billion ounces of reserves and has a superior business model that positions it well long term. As a silver streaming company, Silver Wheaton buys the output of other miners; the company receives a predetermined, fixed price and earns the spread between cost and prevailing market price.
Most recently the company purchased a gold stream from Barrick Gold Corporation (USA) (NYSE:ABX) . This was a new direction for Silver Wheaton Corp. (USA) (NYSE:SLW), but the partnership with Barrick allowed the company to get some diversification and invest in what is expected to be the largest gold mine on earth when completed. Long term, Silver Wheaton looks strong, making it an important consideration when doing personal financial planning.
Perhaps the most exciting area in commodities these days is the explosion in LNG activity as a result of the shale gas and oil boom. The Potential Gas Committee – an industry group that estimates the U.S. supply of natural gas if all of the resource obtainable using currently available technology were harvested – increased its reserve estimate by 26% to 2,384 trillion cubic feet – 90 times 2012 consumption levels. The short-term pressure on gas prices may be negative, but the long-term impact is to demonstrate that there is sufficient supply to warrant the expansion of technologies reliant on LNG.
Clean Energy Fuels Corp (NASDAQ:CLNE), for example, has announced America’s Natural Gas Highway, an initiative to building LNG filling stations along critical trucking corridors with the goal of encouraging more freight to move by LNG power. While the project is still in early stages, potential like this should be an element of personal financial planning because the long-term ramifications are significant. This type of investment may still qualify as speculative, but the return potential is such that it deserves consideration.