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(Kitco News) – Rising bond yields and bullish momentum in the U.S. dollar continue to weigh on broad commodity prices; however, despite the lackluster price action, one investment bank says that emerging global economic trends mean investors should hold copper, gold and silver in their portfolio.
In a recent interview with Kitco News, Robert Minter, director of ETF Investment Strategy at abrdn, said investors continue to underestimate the growing supply imbalance, impacting the global economy and keeping inflation persistently elevated.
He added that in this environment, it is unlikely that the Federal Reserve will be able to get inflation back to its 2% target and gold remains an attractive asset as inflation keeps real interest rates low.
“I don’t think the Federal Reserve is prepared to bring about the demand destruction that is actually needed to bring inflation down,” he said. “It’s not the demand side of the economy that is driving inflation; it’s the years of under-investment in basic commodity production that is driving prices right now.”
Minter said that while there has been some improvement in recent months, the supply of critical LME metals, nickel, lead, zinc, aluminum, and copper, are still near their lowest levels in decades. He added that demand for these metals continues to grow as the world transitions to greener energy technology. He said that he doesn’t see future production keeping up with demand.
“The world won’t meet its green-energy targets without these metals, but I don’t see where we are going to get them,” he said. “I don’t know how we will find these metals without sustainably higher prices.”
Minter added that U.S. government environmental policies — like President Joe Biden’s recent declaration, creating the Grand Canyon National Monument, which is expected to curtail some uranium exploration in the region – are only exacerbating the supply issues.
“It’s these kinds of decisions that create a rich environment for commodities because the supply is just being taken for granted. Everyone’s focusing only on demand and the fear of a recession, but nobody is looking at the supply and that is what is going to drive prices in the long-term,” he said.
While Minter said that he is bullish on a variety of metals, his top picks for investors are copper, gold and silver.
He said that central banks will continue to buy gold to diversify their holding and protect their purchasing power as the world continues to see persistently higher inflation.
Minter added that he doesn’t expect the U.S. dollar to lose its global reserve currency status anytime soon; however, it does make sense for nations to diversify, especially as the decades-long globalization trend continues to fade, he said.
“This isn’t the start of some new world order that challenges the U.S. dominance. I see this as what prudent portfolio managers would do when they see they are too heavily invested in one area. These nations are diversifying their holdings to protect themselves.”
Finally, Minter said that as an investor, if you love copper and gold, then you have to love silver.
“Silver is the best of both worlds. It’s an important monetary metal and industrial metal. I would expect when sentiment shifts, silver will outperform both metals,” he said.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.