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We remain in uncertain and volatile times, where markets are grappling with a cocktail of uncertainty – Russia, China, inflation and interest rates. The “fear of missing out” that characterised so much of the investing landscape over the past two years has transformed into another, much simpler emotion – fear itself.


We’re almost halfway through 2022, and so far gold has been the big winner after oil, coal and other commodities. The yellow metal has managed to stay positive since the start of the year, skirting pressure from surging yields and a strong U.S. dollar. My feeling is that gold should continue to perform well, given that we are likely to stay in a negative real interest rate environment – i.e. inflation outpacing interest rates.


More broadly, not only is the commodity bull market not over, it has hardly begun. Data courtesy of New York resource consultancy, Goehring & Rozencwajg, shows the returns of the Goldman Sachs commodity index versus the level of the US stockmarket, as measured by the Dow Jones Industrial Average. So, commodities are either enormously undervalued, or the major US share index is correspondingly enormously overvalued – or even both!


And whilst some commodities are experiencing some sort of pullback at the present time, let’s not lose sight of the much bigger picture. The bottom-line is that no extractive industry has ever been able to massively boost output within a decade, given the reality of the timeline in terms of exploration, appraisal, de-risking, approvals, funding, construction. Doing this in the era of ESG will be even more challenging. Inevitably, commodity prices will be heading significantly higher.


If you demonize a sector, don’t be surprised if supply isn’t there when you need it. The US oil sector is one such example, where refined fuel prices – gasoline, jet fuel and diesel – are much higher now due to the ongoing closure of oil refineries, with US refining capacity now at a 30-year low. Refinery owners have closed old refineries and not invested in new capacity due to opposition to fossil fuels. And who can blame them? Yet again, we see politicians playing politics and making the mistake of demonising existing energy sources and encouraging their closure or removal without thinking about the consequences when alternative energies are not yet ready to step up.


Copper is one of the most important commodities in terms of being a barometer for global economic health – and prices are showing signs of stability after recent losses, driven again by supply-side concerns. Workers at Chile’s state-owned Codelco started a nationwide strike on Wednesday to protest the government’s and the company’s decision to close a troubled smelter. Despite recent negativity in the sector, at 117,025 tonnes, copper stocks in LME-registered warehouses are down 35% since mid-May. Copper supply problems out of South America remain a major concern for world markets.

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