The first half of 2019 has already been a good year for mining stocks. The first quarter saw most precious metals alongside other industrial metals surge in value before declining somewhat over the second quarter.
While some have remained at record-setting prices, such as in the case of iron, most others have fallen somewhat. However, mining stocks are poised to see a dramatic comeback in the following months, especially if the renewed trade talks between the U.S. and China go through.
This isn’t a novel idea among industry experts, as mining companies and metal prices have been largely at the mercy of trade headline for most of 2019, while business fundamentals have taken a backseat. So far, the S&P 500 Metals and Mining Index is up 12 percent, in comparison to the S&P5 500’s return of 19 percent.
Even worst, most of the former’s performance was driven by gold stocks, with prices surging in recent weeks while base metals largely underperformed. To put the difference into perspective, the BI Global Base Metals Competitive Peer Index fell by 5.5 percent, while the VanEck Vectors Gold Miners ETF is up 21 percent.
Until a major trade deal comes through, however, gold will likely continue to edge out over other base and industrial miners (with the exception of iron thanks to its record price level).
Demand for gold-backed ETF’s grew by 15 percent in the month of June alone, reaching a 7-year high. Gold miners are already enjoying one of the best markets in a long time as high prices give companies a sorely needed increase in profit margins.
BMO analyst Colin Hamilton ended up saying on Tuesday that supply and demand for base metals remain pretty tight, which will lead to a healthy market for mining companies. Specifically, precious metals like gold have been helped by the expectation of future rate cuts, but warned that investors “still face a world where the industrial economy remains nervous about the impact of trade friction.”
Hamilton added that while he thinks that base metals could go higher in 2019, he still prefers precious metals backed by gold, which he argues has now shifted to a new, higher price range. One particular industrial metal, copper, he argues is being far to low.
The recent sell-off in the red metal has traditionally been seen as an economic warning sign of a potential reason. However, he goes on to say that the fall in price is largely unjustified, expecting a return to a normal range by the end of the year.
Should a trade deal come about, however, gold and silver are expected to take a mild hit as positive global economic moves tend to have the inverse effect on precious metals, but whatever decline happens won’t be too severe.
On the other hand, should a trade deal not go through and we see a continuation of the status quo, further declines in base metals are to be expected, with a particular emphasis on the already record-high iron prices, which many industry experts argue as being unsustainable.
