TSX/TSX-V: Precious metals and precious metal equities continue to perform well. The contrarian will note that these equities are “less cheap” than during our last interview. Still, over the last 40 years, metal equity rallies yielded gains ranging from about 150 per cent to 1,200 per cent trough to peak, meaning that this rally could have a lot of room left. It is worth noting that as an investment class, precious metals and precious metal equities have the lowest market share in the universe of savings and investment products that they have ever had since these statistics started to be measured. By some estimates, their market share would have to increase four-fold in order for them to recover to a three-decade mean. In my experience, precious metal investments do well when savers harbour doubts about sovereign interest rates relative to the maintenance of fiat currencies’ purchasing power. With negative real interest rates in every major sovereign debt market, this is an easy test for precious metals.
Other commodities such as industrial materials as well as oil and gas are also very cheap on a historic basis. In the near term, however, their outlook is much less certain. Prices are set at the intersection between marginal supply and marginal demand. These materials are very economically sensitive. As we are at least 10 years into an economic recovery that has been driven to some degree by artificially low interest rates, some observers (myself included) are concerned about an economic recovery and the potential near-term decline in demand for industrial materials. In the very near term, the impact of the coronavirus in China has already impacted raw material demand and pricing. Oil and gas, particularly in Canada, are challenged by political considerations and perceived climate concerns.
Rick Rule on BNN.ca Market Call 2nite Monday PDAC Mar 2nd @ 1800ET |
