Gold and precious metals, the most coveted safe haven investments, are losing some of their shine as ultra-low interest rates and fiscal stimulus policies look as though they’re locked into place for the next two years. When U.S. treasury yields go up, the price of gold goes down. Fortunately, gold’s poorer cousins – the industrial metals – are here to save the say.
The market has displayed some encouraging upticks recently, spurred on by industries re-opening, however bottle-necks are likely to cause delays in some asset classes returning to their former glory.
The ballooning Fed Reserve balance sheet has given a shot to the US economy in the arm by way of monetary stimulus and is now triple the size it was during the 2008 Global Financial Crisis. That’s an increase of +343% to be precise – up 184% or +$3.55 trillion since the pandemic. A quick look at the sudden skyrocketing of producer prices in China tells us the winds of inflation are about to blow in – and they’re blowing strong.
Investing in rare metals and industrial metals is a solid strategy that allows you to back both horses. As the economy recovers and renewed consumer confidence kicks off a little discretionary spending, the supply-demand gap will increase, triggering price appreciation, and production margins.
The case for industrial metals is fairly clear cut: they’re used in manufacturing, construction and technology. Similar to commodities, TIPS and real estate investments, they’re a solid inflation hedge amid declining purchasing power. They’re out doing the hard yards for your portfolio when gold can’t, and will keep your balance sheet healthy during times of broad-based reflation.
Governments are strategizing and spending to return the economy to its pre-COVID financial position. Biden’s $2 trillion infrastructure plan is on track to be approved by Congress by 2Q 2021, the EU’s seven year EUR 1.8 trillion recovery fund and China's move towards high-end manufacturing value added will contribute to a sustainable economic recovery for the coming years.
An improving labor market and rising household consumption will benefit the industrial metals industry as it is directly related to construction, mobility, manufacturing electronics and tech-related components: crucial elements of the value chain.
In this optic, companies in the mining industry are excellent picks, particularly with battery use increasing in electric vehicles, associated infrastructure such as charging stations, tax incentives on EV purchases and more. Vancouver-based company Lithium Americas is one such company involved in the extraction and production of lithium and set to capitalise on the growing industry.
Ultimately, making the choice to invest in industrial metals has the potential to be highly profitable as the sector capitalizes on market reflation and accelerating inflation, protects your portfolio and there’s a whole lot of room for growth.