Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Investors poured just under $51 billion into commodity markets during the first seven months of the year according to new research from UK investment bank Barclays Capital.
That was the largest inflows since 2009. The rise in commodity values combined with the new money invested in the sector saw a $74 billion spike in the value of commodity assets under management since the start of the year.
The positive investment flows in 2016 came largely on the back of gold investments with precious metals representing almost $30 billion of total inflows in the first seven months.
Much of the investor demand this year been tactical and, unless the asset class continues to generate strong returns in the second half then outflows could resume
Gold-backed exchange traded funds have seen record inflows this year with vaults adding 630 tonnes up to the end of July and total holdings swelling to 2,240 tonnes. It represent a dramatic reversal of the trend during the last three years when a staggering 1,198 tonnes left funds. Physical gold ETF holdings hit a record record 2,632 tonnes at the end of 2012.
The outlook is a little less rosy. MarketWatch quotes the authors of the report as saying July inflows were likely the high mark given a “worrying pattern for commodity investors that is relevant here which is the tendency for commodity prices and investments to perform fairly well in [the first half of the year] but then to collapse”:
Overall they said expect a flat to slightly lower performance for commodities in the second half of this year, alongside a sharp move lower for copper. And while crude will recover in the final quarter of the year, it isn’t projected to exceed its year-to-date high in the mid-$50s.
“Much of the investor demand this year been tactical and, unless the asset class continues to generate strong returns in the second half then outflows could resume,” Barclays analyst Kevin Norrish told the FT.
Gold fell back on Friday to exchange hands for $1,342 after US non-farm payroll numbers data surprised markets. Earlier this week closed at a two-year high near $1,380 and year to date the metal is still up 26% or nearly $300 an ounce.
