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Commodities prices are hovering near record highs. But with China warning about “excessive speculation” in raw materials like iron ore and copper, will the commodities bulls run continue? Kim Parlee speaks with Bart Melek, Global Head of Commodity Strategy, TD Securities.
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Speaker 1 [00:00:03] Bart, it's always great to have you with us. We have our list of commodities that we want to ask you about, so let's start things off, if we could, with copper, big rally. And of course, it's in pretty much everything, which is why it just moved up so much. But do you see the boom in copper continuing or could China's recent impact or statement have an impact?
Speaker 2 [00:00:24] Well, I think for now we're done with the rally. I would say that our indicators on the supply side and on the demand side are telling us that for the time being, we might migrate a little lower here. There isn't a massive scarcity per say, and I think we ran up a little bit too much. And certainly China's statements are making a bit of a difference. But more importantly is the fact that economic indicators are pointing down for the next little while.
Speaker 1 [00:00:55] Hmm, interesting. What about gold? I mean, gold has been hit rather hard in the past that a while, of course, some theory saying that crypto taking the shine off gold a little bit, but it seems like it's resuming its climb upward. So what do you see for gold?
Speaker 2 [00:01:11] Well, we have been quite positive for gold, as you know, and now it's finally hitting our nineteen hundred dollar target. I think what is the environment that is particularly not great for ore nor for copper makes gold shine. So two things are happening here today. We saw some disappointments on the US economic data and that basically is telling us that real rates for the next little while will remain very accommodative for gold. That is very unlikely that despite all the statements we've heard from the Federal Reserve and the latest FOMC minutes that the Fed is going to be keen to tighten up monetary policy by, let's say, tapering its asset purchase program. So for now, we think that yields are going to not rise too much. That will have an effect of keeping low or continuing negative interest rates and maybe suppressing the dollar a little bit. Both are very, very conducive to higher gold price.
Speaker 1 [00:02:17] Interesting how much higher do you see gold going?
Speaker 2 [00:02:22] You know, certainly we can test recent highs, but nothing is forever. We think we probably go to nineteen hundred dollars plus, as I've been writing for the last few months, we might stay there. And if monetary policy looks to be tightening in a real material way, it'll probably go off those highs. But I think it's premature to say at this point. We're waiting for the Jackson Hall Symposium in Wyoming where the central bankers will get together and, you know, give us a bit of guidance on what they think is likely to happen for the next year or so. We suspect it'll be monetary policy, easiness for quite a long time. We're still seeing challenges from participation rates to an equitable employment across different groups. And I think we're going to need accommodation for a long time. Even if there is tapering, it isn't going to be anything radical that massively tightens up conditions. So we think gold may stay at elevated levels for quite some time.
Speaker 1 [00:03:28] Interesting. What about silver, I mean, silver tends to be somewhat of a more industrial story. So where do you see that moving?
Speaker 2 [00:03:37] Well, you're absolutely right, on the on the silver. It is much more industrial than gold. Some 60 percent of demand comes directly from the industrial sector. And its hybrid is both a monetary type of metal like gold, which benefits whenever gold does well. The characteristic over time has been in terms of volatility. For every one percent move in gold, silver tends to double that. So gold does well. Silver should do so much better. And when we look at silver now, it is becoming a very important metal for the reading of the economy going forward. We're increasingly using it for Ive's. We're using it for sophisticated hybrid vehicles, which uses a lot of electronics, and there is not a lot of supply out there. So we think silver at about thirty dollars over the next six months is very, very doable.
Speaker 1 [00:04:30] I got to ask you about oil. I've been hearing some predictions. You can see it getting up to 80 dollars a barrel for Branch Oil this year. What do you say?
Speaker 2 [00:04:40] We're not that far from from that view 80 is a little bit too high as far as I'm concerned, but look, much of it will depend on how OPEC handled the introduction of their spare capacity into the market. I don't think there's any debate whatsoever that demand will be much, much higher in 2021 than it was last year. In fact, we think it drove by some 5.5 - 5.7 Million barrels a day. That still doesn't compensate for the eight and a half million barrels per day loss that we've seen last year. But it goes a long way and there's lots of spare capacity if OPEC introduces this very slowly and keeps inventories moving lower. 80 dollars is very feasible.
Speaker 1 [00:05:27] Aren't always a pleasure. I want to leave it there. Thanks so much.
Speaker 2 [00:00:24] Well, I think for now we're done with the rally. I would say that our indicators on the supply side and on the demand side are telling us that for the time being, we might migrate a little lower here. There isn't a massive scarcity per say, and I think we ran up a little bit too much. And certainly China's statements are making a bit of a difference. But more importantly is the fact that economic indicators are pointing down for the next little while.
Speaker 1 [00:00:55] Hmm, interesting. What about gold? I mean, gold has been hit rather hard in the past that a while, of course, some theory saying that crypto taking the shine off gold a little bit, but it seems like it's resuming its climb upward. So what do you see for gold?
Speaker 2 [00:01:11] Well, we have been quite positive for gold, as you know, and now it's finally hitting our nineteen hundred dollar target. I think what is the environment that is particularly not great for ore nor for copper makes gold shine. So two things are happening here today. We saw some disappointments on the US economic data and that basically is telling us that real rates for the next little while will remain very accommodative for gold. That is very unlikely that despite all the statements we've heard from the Federal Reserve and the latest FOMC minutes that the Fed is going to be keen to tighten up monetary policy by, let's say, tapering its asset purchase program. So for now, we think that yields are going to not rise too much. That will have an effect of keeping low or continuing negative interest rates and maybe suppressing the dollar a little bit. Both are very, very conducive to higher gold price.
Speaker 1 [00:02:17] Interesting how much higher do you see gold going?
Speaker 2 [00:02:22] You know, certainly we can test recent highs, but nothing is forever. We think we probably go to nineteen hundred dollars plus, as I've been writing for the last few months, we might stay there. And if monetary policy looks to be tightening in a real material way, it'll probably go off those highs. But I think it's premature to say at this point. We're waiting for the Jackson Hall Symposium in Wyoming where the central bankers will get together and, you know, give us a bit of guidance on what they think is likely to happen for the next year or so. We suspect it'll be monetary policy, easiness for quite a long time. We're still seeing challenges from participation rates to an equitable employment across different groups. And I think we're going to need accommodation for a long time. Even if there is tapering, it isn't going to be anything radical that massively tightens up conditions. So we think gold may stay at elevated levels for quite some time.
Speaker 1 [00:03:28] Interesting. What about silver, I mean, silver tends to be somewhat of a more industrial story. So where do you see that moving?
Speaker 2 [00:03:37] Well, you're absolutely right, on the on the silver. It is much more industrial than gold. Some 60 percent of demand comes directly from the industrial sector. And its hybrid is both a monetary type of metal like gold, which benefits whenever gold does well. The characteristic over time has been in terms of volatility. For every one percent move in gold, silver tends to double that. So gold does well. Silver should do so much better. And when we look at silver now, it is becoming a very important metal for the reading of the economy going forward. We're increasingly using it for Ive's. We're using it for sophisticated hybrid vehicles, which uses a lot of electronics, and there is not a lot of supply out there. So we think silver at about thirty dollars over the next six months is very, very doable.
Speaker 1 [00:04:30] I got to ask you about oil. I've been hearing some predictions. You can see it getting up to 80 dollars a barrel for Branch Oil this year. What do you say?
Speaker 2 [00:04:40] We're not that far from from that view 80 is a little bit too high as far as I'm concerned, but look, much of it will depend on how OPEC handled the introduction of their spare capacity into the market. I don't think there's any debate whatsoever that demand will be much, much higher in 2021 than it was last year. In fact, we think it drove by some 5.5 - 5.7 Million barrels a day. That still doesn't compensate for the eight and a half million barrels per day loss that we've seen last year. But it goes a long way and there's lots of spare capacity if OPEC introduces this very slowly and keeps inventories moving lower. 80 dollars is very feasible.
Speaker 1 [00:05:27] Aren't always a pleasure. I want to leave it there. Thanks so much.
