Zinc and gold poised to break free of commodity slump – by Paul Brent (Globe and Mail – November 3, 2016)


Seasoned investors know that commodity cycles are long and slow affairs that build up to a really great party that ends with a long, lingering hangover. Right now, for most commodities, we are in the hangover phase.

Plenty of culprits can be blamed for the pain. We face a mine overcapacity, as operations that were financed in the boom times are now up and running. An aging population in most of the developed world is responsible for slowing consumption. Developing economies have slowed, headlined by China, which has been increasingly counted on as a global engine.

Commodities usually get hammered in economic downtowns and, even in this tepid recovery of the past seven years, most are well off their prebubble peak prices. That means commodity watchers have to pick and choose more so than in boom times.

“Slow, steady growth is kind of what we are calling for globally, and in that type of environment we drill down into the different supply-demand fundamentals of the different commodities,” says Brahm Spilfogel, vice-president and senior portfolio manager for Canadian and global equities at Royal Bank of Canada Global Asset Management.

His focus is on China, which consumes between 40 per cent and 60 per cent of most non-energy commodities. “When they catch a cold it is quite negative for industrial commodities.” He provides the example of copper, a building and industrial material that serves as a good proxy for economic growth.

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