Never in history have global interest rates been pushed so hard towards zero across so many countries simultaneously, with massive increases in fiscal deficits on top of historically high debt levels in the global economy. Add to this government attempts to support growth through the spending of money that needs to be printed first, and the outlook for precious and some industrial metals continues to look supportive into Q4 and beyond.
The combination of central banks actively supporting the return of inflation and the potential for the dollar to weaken further remains key to our general bullish outlook for commodities, especially those that historically have helped preserve wealth during times of raised uncertainty and inflation.
The year to mid-September performance among some key commodities tells a story about strong demand for precious metals amid the global collapse in rates and the rising risk that inflation will emerge to render government bonds already trading near zero or below useless as a means of safe haven.
Eventually, we see the steep uptrend in HG Copper from the April low being broken, leading to a period of consolidation which we believe may occur in Q4. On that basis we see the short-term upside for copper as limited, with the potential driver for an extension being a renewed promise of infrastructure spending from the next US President – similar to the one Trump promised, but failed to deliver on, four years ago.
Following a year where gold is up more than 20% and silver double that, it is a bold call to look for further gains, at least in the short term. However, the powerful combination of rock bottom rates, rising demand for inflation hedges and the potential for a weaker dollar all point to further gains. Following a prolonged period of consolidation around and mostly above $1920/oz, we see gold eventually moving higher to finish the year at or near $2000/oz.
Considering we have entered unchartered territory, it is difficult to provide a price estimate for 2021. However, using the decade-old price channel, the target for 2021 could be somewhere between $2400 and $2500/oz, some 20% above the mid-September trading area.
The crude oil market is likely to remain stuck, with Brent crude spending most of the final quarter trading in the 40s before eventually moving higher into the 50s during the first half of 2021. On that basis, we raise our Q3 range by three dollars to a $38-$48 corridor.
We remain cautious about crude oil’s short-term ability to rally much further, unless OPEC+ surprises the market by abandoning its planned 2 million barrels/day production increase set for January. While the U.A.E, a major recent laggard, will cut production again, some concerns linger with regards to Iraq, a notorious cheater, and Libya, which will try to increase production following its ceasefire announcement.
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