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The resource sector is at another very interesting inflection point, because the medium to longer-term picture is extremely buoyant – with demand set to escalate and supply-side challenges likely to impact the rate of production growth necessary. However, the near-term picture is clouded to say the least – the impact of rising rates is taking its toll on the world economy, and China’s post-covid emergence still has question marks over it.

I think it’s fair to say that the latter period of last year and early this year was characterised by a rather over-optimistic view of China and inflation. There appeared to be an assumption that China’s emergence from its covid restrictions were a fait accompli, with a lot of pre-emptive buying taking place in key commodities – especially iron ore and copper. The reality is likely to be very different, and whilst we have seen some positive data coming out of China, we need consistency to see commodity prices move higher in the near-term.

After all, iron ore prices have already risen by 60% since their lows of November last year, so a reasonable amount of upside is already factored into prices. We can see a similar picture with copper, with prices up 30% from their July lows last year.

So, we’ll need more positive data out of China in my view to really move the meter on commodities. If we do, we might be faced with a situation this year like we did during 2020, where it was China that was left to do the economic heavy lifting, as the impact of higher interest rates impact Western economies.

Along these lines, I think crude oil could be the dark horse commodity that’s flying under the radar that could benefit from China’s steady reopening, and where there hasn’t yet been a lot of price action. Oil demand in China could rise due to three key factors – rising China demand and imports as the country reopens, greater China refinery capacity, and OPEC supply restrictions.

Against all of this uncertainty, it is difficult to go past gold. Gold’s performance in 2022 saw it fulfill its traditional role as an ‘insurance policy’, whereby it maintained its value during a period of extreme volatility and significant losses in equity markets and other asset classes. We are likely to see gold do this again this year, but at the same time continuing the upward price trajectory that it’s generated over the past 20+ years.

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