By Richard Gray Cormark Securities
The gold price has enjoyed a strong year so far in 2020 with the year-to-date average of $1,762/oz up 26% from the 2019 average of $1,393/oz. The recent weakness (down $177/oz over last three weeks) comes after the U.S. election and the release of positive COVID vaccine results and correlates with a modest increase in real rates.
However, looking into 2021 we believe gold will benefit from a weakening U.S. dollar and inflation concerns, and will continue to be viewed as a safe haven investment and hedge against geopolitical upheaval for investors looking to protect capital in a multiasset portfolio. We forecast a gold price of $1,900/oz in 2021 as a base case, with major fluctuations around vaccine news and U.S. stimulus initiatives.
By Stefan Ioannou
Strong base metal pricing in 2020 has been prompted by better-than-expected Chinese economic data—driven by post-COVID stimulus efforts centred on infrastructure builds.
A pandemic-induced lack of scrap has also helped to bolster metal prices.
While we have modestly increased our price forecasts in 2021 ($3.00/lb for copper, $1.15/lb for zinc, $1.00/lb for lead, $7.50/.lb for nickel) to better reflect improved sentiment, we remain cautious with regards to the near-term impact of potential ‘Phase 2’ pandemic considerations and potential for a greater global economic fallout on the back of wanning government stimulus. Nevertheless, general base metal sentiment is clearly improving—arguably in part reflecting a ‘what next’ resource-focused investment thesis following gold’s run through $2,000/oz earlier this year.
Looking further ahead, we maintain a constructive view on base metal supply/demand fundamentals and continue to expect the industry’s lack of timely new large-scale project advancement over the last 5 years will culminate in a supply deficit—near-term supply growth is dominated by brownfield expansion (as opposed to new discoveries) and the industry’s inventory of available development opportunities is low (and now further delayed by COVID-induced disruption). As such, our bullish long-term outlook remains essentially unchanged and arguably conservative in the context of an anticipated supply deficit.
