Movers and SHAKERS
Monday, April 5, 2021
Minerals Industry Report
Metals & Mining Fourth Quarter 2020 Review and Outlook
Mark Reichman, Senior Research Analyst, Noble Capital Markets, Inc.
Refer to end of report for Analyst Certification & Disclosures
- Mining companies outperformed the broader market. During the first quarter of 2021, mining companies (as measured by the XME) gained 19.4% compared to 5.8% for the broader market as measured by the S&P 500 index. During the first quarter, copper, lead, and zinc futures prices were up 13.4%, 9.9%, and 2.2%, respectively. The VanEck Vectors Gold Miners (GDX) and Junior Gold Miners (GDXJ) ETFs were down 9.8% and 17.0%, respectively, reflecting 9.6% and 7.6% respective declines in gold and silver futures prices. While silver and gold outperformed in 2020, base metals have taken the lead in 2021 as markets recover and economic growth accelerates.
- Base metals supported by cyclical and secular themes. Demand for base metals will likely benefit from global economic growth and infrastructure spending. Additionally, secular themes, including trends toward electrification, favor metals used in electric vehicle batteries, charging stations, and solar and renewable power technologies.
- Outlook for precious metals remains constructive. While precious metals, notably gold, worked as a flight to safety play in 2020, gold prices have given some ground this year and have yet to signal deep concern about inflation despite record monetary and fiscal stimulus. Another headwind for gold has been a strong U.S. dollar. Despite falling 6.7% in 2020, the U.S. Dollar Index has risen 3.7% since the end of 2020 to finish at 92.31 on March 31. While the Federal Reserve likely has the tools necessary to combat a sharp rise in inflation, interest rates are likely to remain relatively lower for longer, and gold’s value could be supported as investors seek it as a store of value. Sentiment could also be influenced by the market's confidence in the government's ability to fund spending programs and manage a growing debt balance.
- Diversification benefits. Investors should consider adding base metals mining stocks to their portfolios to benefit from growing demand as global economic growth accelerates. Infrastructure spending and secular trends bode well for metals linked to the theme of electrification. Allocations to precious metals and associated equities make sense as a precaution against unexpected events that could materialize, including misjudgment by the Fed, a broad sell-off of equities, or any other events that increase uncertainty and angst among investors.
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ANALYST CREDENTIALS, PROFESSIONAL DESIGNATIONS, AND EXPERIENCE
Senior Equity Analyst focusing on Basic Materials & Mining. 20 years of experience in equity research. BA in Business Administration from Westminster College. MBA with a Finance concentration from the University of Missouri. MA in International Affairs from Washington University in St. Louis.
Named WSJ 'Best on the Street' Analyst and Forbes/StarMine's "Best Brokerage Analyst.”
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