Metals miners and metals prices had a good Q1/22, but expected headwinds and the uncertainty about market-impacting factors could affect how they perform during this quarter, Q2/22, reported Noble Capital Markets analyst Mark Reichman in an April 4 research note.
"Despite a cautious near-term outlook, precious and industrial metals prices could hold up relatively well despite near-term headwinds," Reichman wrote.
Accordingly, the analyst recommended investors consider putting money into the mining sector and particularly junior companies over the seniors. This is because juniors have more attractive valuations and greater potential for being acquired.
"Despite a cautious near-term outlook, precious and industrial metals prices could hold up relatively well despite near-term headwinds."
—Noble Capital Markets analyst Mark Reichman
In his Q1/22 review and near-term outlook report, Reichman highlighted that metals mining companies fared better during 2022's first quarter than the overall market did. This was evidenced through performance of three exchange-traded funds (ETFs).
One was the XME, or SPDR S&P Metals & Mining ETF, which rose 36.9%. The GDX, or VanEck Vectors Gold Miners ETF, went up 19.7%. The GDXJ, or Junior Gold Miners ETF, increased 11.8%. Similarly, the futures prices of gold, silver, copper, and zinc futures prices also increased, by 6.5%, 7.5%, 6.7% and 20.9%, respectively.
In contrast, the Standard & Poor's 500, representing the broader market, dropped 4.9% during Q1/22.
During Q1/22, factors that impacted metals and metals miners included a U.S. dollar value increase (2.4%, according to the U.S. Dollar Index), sustained high consumer and core inflation as well as constrained metals supplies constraints and exacerbated inflation, both resulting from the war on Ukraine.
Moving forward, all three factors remain in play for precious and industrials metals, and are shrouded in uncertainty. Another unknown is whether the Federal Reserve will take further action to reduce inflation.
Reichman wrote that continued inflation and negative interest rates could bode well for gold, for example. However, an interest rate hike by the Fed could hamper the yellow metal's performance.
"Moreover, precious metals may be viewed as insurance against expected market volatility and economic uncertainty," added Reichman.
The outlook for industrial metals is similarly cloudy, Reichman noted. Continuing inflation and supply shortages could weaken demand and growth, on one hand. A global recession would hurt the sector. On the other hand, supply improvements, more capital spending and inventory restocking could support metals prices.
Though industrial metals and their miners might not do as well in the near term, Noble Capital remains bullish on them. "We believe the long-term investment case for owning industrial metals mining companies remains favorable," wrote Reichman.
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ANALYST CREDENTIALS, PROFESSIONAL DESIGNATIONS, AND EXPERIENCE: Senior Equity Analyst focusing on Basic Materials & Mining. 20 years of experience in equity research. BA in Business Administration from Westminster College. MBA with a Finance concentration from the University of Missouri. MA in International Affairs from Washington University in St. Louis. Named WSJ 'Best on the Street' Analyst and Forbes/StarMine's "Best Brokerage Analyst.”
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