Better Metals Buy: Gold Stocks vs. Lithium Stocks

Gold is the evergreen choice as a hedge against inflation and weak markets. In contrast, battery metals may offer unique growth opportunities in the current market.

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For many investors, precious metals investments (particularly gold) are a way to salvage decent returns from a weak market. It may seem different due to the contrarian nature of these stocks, but it’s leveraging a market trend.

If the goal is to chase and benefit from a trend, battery metals may offer a potent and powerful alternative to precious metal stocks in today’s economy — a trend that is being fueled by the rising demand for electric vehicles (EVs).

If you can only buy one metal and mining stock and you have to choose between gold and lithium stocks (battery metal) in the current market, the following two stocks can help you make the right choice.

A lithium stock

Lithium is one of the most important battery metals in the world. It’s required for almost all mobile and electronic gadgets as they all run on lithium-ion or lithium-polymer batteries. Also, most of the world’s EVs rely upon lithium-ion batteries.

Naturally, an EV boom accelerated lithium’s demand, and companies like Sigma Lithium (TSXV:SGML) experienced a massive surge. The Sigma Lithium stock has risen over 2,400% in the last three years alone.

It’s easy to see that the stock is riding the lithium demand momentum/trend, and even though it has slowed down a bit, as evident from its 12-month growth of over 160%, it is still going up. The question is, how long will the bullish phase last? The demand for EVs will only go up from here and may remain strong in the next decade, as more conventional vehicles are phased out of the market.

But it’s important to remember that Sigma isn’t the only major lithium producer in North America. If more cost-efficient producers start dominating the market, Sigma’s numbers might suffer, and it will be reflected in the stock as well.

Still, until that happens, Sigma is a powerful growth-oriented investment and may offer you better returns in a couple of years than many steady and long-term growth stocks might offer in a decade.

A gold stock

The situation with gold varies from stock to stock. If you choose a typical gold mining stock that is directly impacted by gold prices and thrives when the stock market is weak, that’s all you might get from them.

But if you choose a gold stock like Franco-Nevada (TSX:FNV), which focuses on royalties and has a diversified portfolio of assets, you may be able to leverage its long-term growth potential to your advantage.

Many gold stocks are going up because the market is relatively weak, and Franco-Nevada is no exception. However, the stock may not become stale or start to slump when the stock market is strong, and instead of investing in gold, people revert to the more generously rewarding stock market. This makes it different from other gold stocks — i.e., a more long-term investment rather than a trend-chasing one.

Foolish takeaway

We can’t be sure when the current positive trend pushing lithium stock upwards might last, but it has proven to be more potent than gold stocks going up during a weak stock market. So, even if you want to leverage a trend, the right lithium stock may be better than a typical gold mining stock.

It’s also a good pick from an ESG (environmental, social, and governance) investing standpoint. However, you can pick a stock like Franco-Nevada as a long-term holding and benefit from returns that are beyond the reach of short-term trends.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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