Exposure to commodities either directly or indirectly is often recommended by most as it is seen as a diversifier asset class. Additionally, sectors such as precious metals and energy products can act as a hedge against inflation. However, the challenge comes with monitoring all of the commodities individually and the factors which influence them, it is a task that takes time the majority of us often do not have.

We have decided to share our position on some of the main Australian commodities to help you with your portfolio decisions, to save you the greatest commodity in the world - time!
~ Ethan Perrett, Senior Investment Analyst

Price of Gold

As of late, the spot gold price has seen a decline to $1,940.00 USD/oz which we believe post the rally can be attributed to investors cashing in and profit-taking. But from our perspective investors still aren’t letting go of that $2,000 USD mark. The long term outlook remains bullish and there are people on the sideline waiting to go long and protect themselves against inflation with catalysts such as economic recovery, US-China trade tensions, Biden vs Trump, all being front of mind. For example, if Biden looks likely to win (he is currently well ahead in the polls) and raise taxes, share market volatility should increase, and Trump if he decides he has nothing to lose, could ramp up tensions with China & Europe. Gold would offer stability.

Analysts at UBS have taken the same standpoint saying that they see the potential for prices to push to $2,300 an ounce. Additionally, if requiring any further comfort we would direct an investor to the news that despite the previously expressed dislike for the precious commodity, Warren Buffet's Berkshire Hathaway has taken a stake in major gold miner - Barrick Gold Corp.

Price of Copper

The recovery of the red metal has been one that has caught many investors' eyes. Although often used to gauge the health of the economy, currently sitting at $6,600 USD/tonne, it has made a strong recovery of 43% in the past few months. The key drivers behind this rally are fairly likely China’s recovery and the strains forced upon key producers, specifically in recent weeks on COVID-related supply concerns out of Latin America which accounts for close to half of global exports. Based on the shortened supply and the rising global demand underpinned by China's rising economy, in the short term, we see the copper price moving northward. However, long term a further negative influence from the virus or rising US-China tensions could counteract this price movement.

Price of Zinc

Zinc has been gaining momentum this past week and currently sits around the $2460 USD / tonne price point, a gain of 11.51% in the past month and a 38.74% since the market lows on March 25th. Despite traders and funds buying back into zinc post the March sell-off, we aren’t overly bullish on this commodity. Unlike fellow rallying base metals copper and iron ore, we expect the Zinc market to be oversupplied in the medium term with LME zinc inventories increased by 61% month on month to 197kt and while China. While supply disruptions have held the price to date as restrictions ease, as inventory grows it is expected that the zinc price will likely retract.

Price of Silver

Silver, similar to gold currently sitting around $26.95 USD / oz mark following a decrease in commodity price within the past week possibly due to profit-taking. In the past 6 months, however, Silver has increased 50.12% from February end (25/02) and 124.38% as of 18th March. Again similarly to gold, Silver can provide protection against inflation but you have to also consider its importance as an industrial component. The similar movers to gold come into play. Firstly, the US Dollar Index has been steadily dropping since last Friday (14 August 2020), touching 92.50 on Tuesday – its lowest level since May 2018. Also as mentioned earlier if Biden gets closer to winning the election it will mean volatile markets but also greater trade relations, both of which favour silver as a haven against inflation and also an industrial commodity.

Price of Iron

Iron Ore currently holds a price point of $105.59 USD / Tonne and according to Bank of America, Australia's iron ore miners can thank Chinese steel output and Brazil's Vale for a very bullish outlook for the price of iron ore. Specifically, the bank has lifted its 2020 forecast to $US96.70 a tonne from $US86, its 2021 forecast to $US85 from $US71.30 and its 2022 forecast to $US75 from $US65. While the Iron Ore price may not hold its current position over with the return of Vale, the spot price should be supported by greater Chinese demand for infrastructure and as Chinese buyers look to build inventory for the fourth quarter to combat weather disruptions.

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