Positive Outlook Into 2022 for Metals and Mineral Miners

Bullish factors for gold and silver going into 2022 and an upbeat outlook for industrial metals were outlined in a report released Friday (Oct. 1). The quarterly metals and mining industry report by the Senior Natural Resources Analyst from Noble Capital Markets makes a case for precious and industrial metals. Moreover, they also see a business climate setting up where M&A activity in the mining sector could accelerate.

Precious Metals

Using ETFs as a proxy for sector performance, gold mining companies and junior gold mining companies underperformed the overall mining sector last quarter (see chart). According to Nobles’s top-ranked Senior Analyst Mark
Reichmann , futures prices for gold outperformed the related mining companies with only a 0.8% decline during the quarter.  The quarterly decline in silver prices was 15.3%.  Reichmann has increased conviction on precious metals and miners. According to the report, “we are growing more bullish going into 2022. Moreover, our outlook remains upbeat for industrial metals.”

Reichmann is constructive on the sector despite what he calls “headwinds” that include a rising U.S. dollar and higher treasury yields. This is because inflation is likely to remain high, real interest rates low, and as written in the report, “…investors may begin to focus on rising federal deficit spending and debt levels. Less favorable year-over-year GDP growth comparisons could take momentum out of growth stocks and investors may tilt to value and defensive sectors.” Reichmann indicates gold and silver can be viewed more favorably as a store of value. He says they value the utility of cryptocurrencies as an exchange medium, but “they have become more of a speculative vehicle whose market values are untethered to intrinsic value.”

Industrial Metals

Last quarter copper futures increased 4.3%, lead 3.6%, and zinc 4.8%. Noble’s industry report states they are still bullish on base metals, “With respect to industrial metals, we remain bullish due to favorable supply and demand fundamentals supported by global economic growth, infrastructure spending, and trends toward electrification, decarbonization, and renewable power technologies,” writes Reichmann. Copper, lead, and zinc are all up on the year 16.4%, 17.8%, and 17.3%.

Industry Take-Away

The quarterly report is very forward-looking and makes a case to remain exposed to precious and base metals. The exposure it explains may be most advantageous if through mining stocks. A couple of the reasons given include valuations, particularly among junior companies, which the Senior Analyst says “remain attractive.” Another is because of the reduced availability of new high-quality deposits. He explains, large, high-quality deposits are becoming increasingly scarce, and lead times to bring a mine into production long. This may promote increased merger and acquisition activity as large mining companies seek to expand output.

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Sources:

Metals
& Mining Third Quarter 2021 Review and Outlook

Koyfin

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