Copper, silver and gold should all be in your portfolio - BCA
In a recent interview with Kitco News, Robert Ryan, chief strategist at BCA Research, said that his firm is bullish on gold in the long-term as the Federal Reserve looks to maintain its ultra-loose monetary policies in the face of rising inflation pressures.
The comments come as gold have been moving steadily higher, pushing above $1,900 an ounce.
However, Ryan said that investors shouldn't dismiss these two metals. He said he expects to see much higher prices through 2021 as demand remains strong.
Ryan is particularly bullish on copper as the base metal will continue to see a significant supply/demand imbalance that could last for years. Ryan said that mining companies will have to spend an enormous amount of money to increase their production, and it is still going to take time to get mines up and running.
Ryan added that new political regimes and tax structures in critical mining jurisdictions like Chile and Peru create even more obstacles for companies looking to build new projects or expand brownfields.
"Right now, there is no easy solution to increase the supply of copper the world is demanding right now," Ryan said. "Copper is in high demand because it is required within every sector for the global economy."
Ryan said that they could see copper prices push above $5 a pound in the current environment. He added that prices have to get higher to bring more supply into the market.
Not only do mining companies face massive capital costs when it comes to building new mines, but Ryan also noted that companies will now have to factor in higher costs when it comes to meeting their Environmental Social Governance (ESG) standards.
Ryan said that mining companies focused on improving their environmental footprint and social standing in society as consumers have set high standards.
"ESG is something that companies are taking very seriously because the world is watching," he said. "Mining companies are being held accountable for their actions."
Ryan explained that this focus on EGS will mean higher costs for better and more engineering at mines, including developing renewable energy sources, improving water usage, and even restructuring tailing ponds and dams.
Ryan said their stance on copper is one of the factors that supports their bullish gold forecast. He explained that faced with growing costs and rising demand, copper prices have to go higher, which will lead to higher inflation pressures.
He added that it's not copper, but a lot of commodities face similar scenarios.
"We are going to have demand pull inflation higher, which is something we haven't seen in at least 20 years," he said.
Although inflation is moving higher, Ryan said that BCA expects the Federal Reserve will maintain its ultra-loose monetary policy. Higher inflation in a low interest rate environment means that real rates will remain in historically negative territory.
"The Federal Reserve is looking at actual inflation, not just models and forecasts," he said. "The Fed is going to hold its stance until it sees actual evidence that inflation is more than transitory and that is good for gold."