Precious metals exchange traded funds have regained their footing and may continue to shine as favorable fundamentals help support the hard assets.
For instance, on the recent webcast, Outlook 2016: Don’t Believe the Hype, James Butterfill, Executive Director and Head of Research & Investment Strategy at ETF Securities, argues that deflationary risks have been exaggerated and we are heading toward inflation.
“Aggregating core CPI, or inflation, highlights a trend of rising core CPI in both the developed and emerging world,” Butterfill said.
As hard assets, precious metals have provided investors with a safe store of value, helping preserve wealth in times of rising inflation. Looking ahead, Buterfill projects inflation to likely hover above 1%, with the Consumer Price Index rebounding this year.
Moreover, while China, a major commodities consumer, has weakened over the past year, the emerging market’s appetite for raw materials has not abated.
“Despite declining over the past year, China demand growth for the ‘big four’ metals – aluminum, copper, zinc and lead – remain strong at 8.5% year-over-year to Q3 2015,” Butterfill said. “It looks committed to its plenary reform packages, particularly if it aims to achieve 6.5% GDP growth through 2020.”
China has issued a 6.5% to 7% growth target for 2016, Bloomberg reported.
On the supply side, Butterfill argues that the extended low commodity price environment may force many producers to cut back on production. The curtailed mining activity will likely have a negative long-lasting effect on the supply side.
“Many commodities are now trading below their marginal cost of production,” Butterfill added, “suggesting it’s only a matter of time before we begin to see supply side destruction.”