THE ELUSIVENESS OF COMMODITY PRICING - WHERE ARE THEY HEADED? INVESTMENT INSIGHTS BY NOEL ONG, SAMSO Commodity price movements are something that continue to baffle investors. The pandemic has created both chaos and also one of the strongest moves in commodity pricing for decades. How is this possible? The commodity price movement is making the mineral exploration sector soar right now. This is clearly represented by the price charts in Figure 1. Before the onslaught of the pandemic, the common narrative on metals such as nickel and copper was that there was a shortage at the LME (London Metals Exchange). This means the pricing must soon reflect deficit. But when that did not happen, it left a lot of investors baffled. You can understand the reason for the market excitement when you look at the ASX 200 (Figure 2). (This is now currently higher than the high prior to COVID, at the time of writing). Recovery was observed in all sectors. Rick Rule, Senior Managing Director, Sprott Inc., and President & CEO, Sprott U.S. Holdings was also surprised at the rate of recovery. He is someone I turn to for these conversations to get insights:
Commodities and Equities: Advice from Rick Rule. Gold, Equities, Sprott Management and
Figure 1: A summary of metal pricing since the Covid-induced crash in March 2020. (Source: www.lme.com)
Figure 2: ASX 200 chart for the last 5 years. The S&P/ASX 200 (XJO) is Australia’s leading share market index and contains the top 200 ASX listed companies by float-adjusted market capitalisation. It accounts for 88% (December 2020) of Australia’s equity market. (Source: www.marketindex.com)
49
