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Hard Asset Market Update: 2020!

Hard Assets Alliance was created as a cooperative of investment professionals who believe there’s a better way to invest in precious metals. This is a guest perspective on the markets from one of these partners; we hope you enjoy it.


Hard Asset commodity markets turned in a solid, if uninspiring, performance last year on the whole. A basket of 29 commodities I track collectively gained 11% in 2019. But that pales in comparison to the 30%+ gain in the S&P 500 Index last year.

Precious metals gained 14.5% last year, led by palladium, which surged 59% higher. Gold prices shined again in 2019 with the yellow metal up 17.9% in 2019. Even better, gold mining stocks soared 39% higher last year, outperforming gold better than 2-to-1 in the process just as I expected.

Industrial metals were mixed with nickel leading the way up 31%, while copper gained 6.75%. Agricultural commodities were also a mixed bag, with coffee up 27% and wheat gaining 11%. Grains as a whole, including corn and soybeans were flat.

Energy prices were volatile in 2019, with crude oil jumping 32.5%. Natural gas prices, on the other hand, collapsed over 30% due to persistent oversupply of US shale gas.

Finally, the ultimate home-grown hard asset market, US real estate, jumped 24.7% in 2019 following two flat-ish years in 2017 and 2018.

Outlook 2020 and beyond …

Hard asset prices are notoriously driven by global supply and demand trends. That is always the most significant factor driving commodity prices, but some markets are much more impacted by supply swings than others. Most notably energy, and agricultural commodity prices can easily be impacted by supply side constraints; most notably geo-political concerns in the case of oil, and weather-related disruptions for ag products. And these factors are very difficult, if not impossible to predict.

Oil along with industrial metals are also heavily influenced by the trend in global economic growth. And in spite of concern that the coronavirus will slow growth in China, the indicators I’m watching closely suggest that global growth is turning higher in 2020 after a 2-year slowdown.

Real GDP Year over Year (%)

Global measures of manufacturing and service-sector activity have already shown tentative signs of bottoming and turning higher. Likewise, as you can see in the graph above, US economic growth is expected to tick higher for the fourth quarter of 2019 and continue accelerating in 2020.

In fact, our economy has been growing for 11 straight years now an unprecedented expansion. Overall, GDP growth has averaged a respectable 2.3% clip over the years, but along the way we’ve seen two previous growth slowdowns in 2011, then again in 2016, as you can see above.

Growth slowed to a quarterly low of just 1.3% in 2016, but then accelerated again for 8 straight quarters in 2016 and 2017. And guess what, the stock market surged higher in 2016 and 2017, and that’s also when hard asset markets began booming again too!

Now the exact same dynamic is playing out all over again as quarterly GDP is expected to jump to 2.3%, up from 2.1% last quarter. Faster growth means more demand for hard assets, plain and simple and that’s good news for Hard Asset Trader members.

The demand side of the equation for commodities also gets a big boost from global population growth. Since 2000, the world’s population has expanded nearly 30%, rising to 7.6 billion. Every single year the world adds about 80 million new consumers! The demand for hard assets is always expanding, while commodity supplies aren’t. Lack of investment in new sources of commodity supply over the past few years of slowing growth means a higher likelihood supply-shocks in many hard asset markets amid persistently growing demand.

My favorite hard asset markets for 2020 …

I believe hard asset markets as a group will perform even better this year than in 2019, with several likely to outperform the S&P 500 Index in 2020.

My favorite hard asset class remains precious metals, specifically gold and select mining stocks, and it’s easy to see why.
Gold is both a commodity and a financial asset, which is why the yellow metal should experience double-barreled upside potential in 2020 and beyond.

First, the commodity supply-demand case is clear as I’ve pointed out many times before in Hard Asset Trader: Years of under-investment in new mining production after the peak in gold and silver prices in 2011 has led directly to an absence of large discoveries in recent years. That’s happening at a time when the global demand for gold and other precious metals has been on the rise.

 

Second, as a financial asset, gold is in high demand when other financial assets struggle. The Federal Reserve and other major central banks are cutting interest rates again, and the Fed is once again expanding its balance sheet.

This directly undercuts the value of, and confidence in, the US dollar and Treasury bonds. Ultimately it will lead to a crisis of confidence in our financial system that is awash in too much debt and the return of inflation.

You can see above that these two factors combined triggered an upside breakout for gold over the past 18-months. After a 40% decline from the 2011 peak, and then two- and one-half years of sideways price action, gold has jumped 34.5% since the 2018 low.

Recently trading above $1,600, gold has reached the highest level in seven years, and this is just the beginning of the next big move. Mining stocks meanwhile have gained 179% over the past four years alone, easily outperforming gold by more than 4-to-1 since then!

That’s why select, quality gold and silver mining stocks remain my favorite hard asset class in 2020 and beyond.

That’s why you can expect more trade recommendations this year on select precious metal mining stocks that pass my strict screening process for quality, undervaluation and growth potential. So stay tuned for more trade alerts and hard asset updates.

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