A few months ago, many thought commodity prices couldn’t go anywhere but up. Not so anymore. While oil prices keep surging as global demand rises, copper and gold prices have been struggling. Kim Parlee talks with Bart Melek, Global Head of Commodity Strategy, TD Securities.
BART MELEK: Thank you for having me on, Kim. I think oil, for the time being, may migrate a little higher here. What we're seeing is the global economy open up rather quickly. Third quarter looks like we'll see three million barrels of return demand. I'm not saying new demand, but return demand come up and open. Plus, that producer group continues to be extremely cautious in how it is introducing the spare capacity into the market. And I think for the time being, we will have a tight supply-demand environment and we could very well see still somewhat higher prices.
KIM PARLEE: How much higher are we talking? 80, 90, 100?
BART MELEK: Well, you know, certainly technically it can hit around 80. You know, we've seen the mid 70s. We can go marginally above 80. We don't think this is sustainable, mainly because there's an awful lot of supply out there, potentially more supply from Iran, provided that the P5+1 negotiations go on and the US lifts the sanctions against the Islamic Republic. And that would mean a lot more oil and then somewhat all bets are off. OPEC would have to continue to be even more disciplined. And that is an uncertainty. But plenty of oil for now and plenty of discipline, which means tight markets as demand starts returning back to normal.
KIM PARLEE: Interesting. What about copper? We see, of course, shortages of supply driving prices up. We also have the Chinese talking about releasing copper from their reserves. So where do you see copper pricing going?
BART MELEK: Well, I think copper will hold here for a little bit. But ultimately, as we see things move into the third and fourth quarter and into 2022, we actually see it migrating somewhat lower. Copper has been overdone. We've seen highs well over ten thousand not that long ago. That was very, very, very strong speculative interest from China. Just a surge in demand. We had that [INAUDIBLE] recovery. And now what we're seeing is a significant slowdown in China. There are monetary conditions or the financial impulses are moving lower, industrial activity, manufacturing, still at high levels. But the rate of change on the upside has declined and we could see some reversals. And as we look into 2022, we see more supply and probably surpluses. So really no good reason why copper should be where it is for now. Long term, we think it has a lot more upside, though.
KIM PARLEE: Okay, interesting just to see that happening in 2022 to the supply side. Last question for you. Gold normally is an inflation hedge. Certainly hasn't been performing that way, though. So what is happening and where do you see it?
BART MELEK: Well, we still like gold. We still think that we could get over 1,850 over the next six to nine months. Gold, of course, retraced significantly lower after the Federal Reserve. The last FOMC basically signaled a significantly more hawkish tone. We still think that conditions are quite conducive to strong gold prices, negative real interest rates. The Federal Reserve very much targeting full employment, meaning the zero bound or zero interest rates should be with us for quite a while. And let's face it, tapering will start in January. But that isn't exactly tightening, that's just removing uber accommodation from the market. I think conditions are still there to see higher gold prices longer term.
KIM PARLEE: Bart, always a pleasure. Thanks so much for joining us.
BART MELEK: It was my pleasure. Thank you.