There are three possible scenarios for the economy in the near future—and commodities such as precious metals fare well in all three, according to Robert Minter, director of ETF Investment Strategy at abrdn, a global asset manager based in New York City.
Either the market has already anticipated what is going to happen; or the history of market cycles can be used to predict the future; or the Federal Reserve is right in continuing to raise rates for a while, he said.
If the market is correct the economy will experience a mild recession with a soft landing. If history can be relied on to predict the near future, the economy will suffer a recession. If the Federal Reserve Board is correct in its actions, the economy will continue to be strong, Minter said in an interview.
“The economy was going 100 miles an hour and is now slowing to 70 miles an hour, which is still fast, but is technically a slowdown. However, there has been no real job loss, so what we have been telling clients” is that the economy should fare well, Minter said.
“The Federal Reserve Board will raise rates a couple of more times but the hikes will be smaller and the market has already priced these increases in,” he added. That is one possibility, but no matter what scenario plays out, there will be few dislocations in the market, he said.
“From a commodities point of view, it is a really interesting time,” Minter said. We are telling clients we need “to look at commodities that are cyclical and ones that are key to energy transition.”
In addition, investors should put world politics aside and look at investments from a practical point of view, he said. They should also take ESG factors into account because for the future ignoring these issues creates risk.
Precious metals such as platinum and gold will continue to be in demand, and can be used to earn returns in a portfolio and provide diversification, no matter how the economy plays out, he said.
However, there are headwinds that could be building, he said. The supply side of the commodity market is wholly unready for a soft-landing economy and may not even be sufficient to meet current demand.
In addition, there is widespread evidence of commodity production being constrained by labor issues, higher tax rates, lack of electricity, permitting issues, geopolitical tensions, and sanctions. It may not take a great shift in economic activity to expose the lack of commodity inventory, so investors may want to consider a broad commodity index for their portfolio in this event, according to abrdn.