A rebound with fundamentals
For years, we have had a bullish outlook on commodities, supported by technical (chart 1) and fundamental analysis. Although economic fluctuations have affected our stance recently, we maintain a structurally bullish view. Currently, we are back to being strategically positive, upgrading the materials sector to a favorable outlook.
Looking at the sector more closely, we note that after a 13-year bear market through 2021, commodities showed signs of a turnaround in June 2021. After a 190% increase from April 2020 to June 2022, they entered a new bull market. Price consolidation from 2022 is natural following that growth. After 2 years of consolidation, we anticipate a long-term bullish continuation..
Chart 1: FTSE/CoreCommodity CRB Excess Return Index (long term)
Industrial Metals, what is happening to them?
The industrial metals sector is on the rise due to cyclical and structural factors. Recent economic data and manufacturing purchasing indices (chart 2) suggest a recovery in demand, especially for copper and aluminum. China's orientation towards a green economy and limited supply reinforce the bullish outlook.
Graph 2: Manufacturing PMI for different regions
The combination of cyclical and structural drivers supports solid short- and long-term growth in the sector (Figure 3). The recovery in global manufacturing activity and sustainability policies are driving demand for metals. This motivates a change in outlook, reducing the focus on defensive sectors and highlighting the upside potential of industrial metals.
Chart 3: MSCI World Cyclical vs. Defensive Sectors
Gold and more gold, but... silver is also present.
Precious metals, especially gold, are experiencing a sustained rally, moving away from their traditional relationships with macroeconomic variables such as U.S. real rates and the U.S. dollar (Figure 4). Despite rising rates and a strengthening dollar, gold continues to reach new highs due to geopolitical uncertainty and the prospect of increased economic volatility.
Graph 4: U.S. real rates. - Invested (1,87); Gold (2,229.87)
One of the other interesting elements happening around gold is that Chinese investors are turning to the metal as a store of value due to deflation and the lack of attractive domestic investment options. Despite its high prices in yuan terms, Chinese households are expected to continue to seek gold. Meanwhile, on the part of India's strong economic outlook and cultural affinity for gold will drive increased demand for jewelry and bullion (Figure 5).
Graph 5: Central banks - Gold purchases in 2024 (tons)
Silver, being a hybrid metal, benefits from its industrial demand and its status as a store of value. This metal is more sensitive to economic cycles than gold due to its use in industrial applications. Historically, in bullish periods for gold, silver outperforms its relative value, suggesting a 21% increase in its current price.
Figure 6: Gold/silver ratio (85.2)
What opportunities do we see?
The commodity market, driven by cyclical and structural factors, shows significant upside potential. Careful investment selection is crucial. Pn the other hand, silver and gold miners, historically correlated with gold, show a recent deviation, anticipating their return to supremacy over gold (graph 7).
Figure 7: Evolution since 2022: Gold (+29%); Silver (+19%); Gold miners (+7.5%)
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