Mining companies and commodities have had a difficult second quarter but exposure to the sector as an investor is still worthwhile, according to analysts at Noble Capital Markets Inc.
In the three months to June 30, 2022, the VanEck Vectors Gold Miners (GDX) and Junior Gold Miners (GDXJ) exchange-traded funds (ETFs) were down 28.6% and 31.7% respectively, while futures for gold, silver, copper, zinc and lead fell 7.7%, 19.9%, 22.6%, 13.7%, and 3.7% respectively.
Analysts at Noble cited the restrictive Federal Reserve policy on interest rates, the strength of the US dollar and general economic malaise as the reason for the falls in commodity prices.
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But for gold, there are still some positives against this backdrop, they added, noting that "with consumer and core inflation at 8.6% and 6.0% through May, along with increased market volatility, gold remains attractive as a store of value and insurance against market volatility and economic and geopolitical uncertainty".
"Gold fared better than gold mining companies during the quarter and we think access to capital and market liquidity may have been contributors," the analysts said.
But they also noted that: "Not being able to benefit from an upsurge in gold prices, silver fared worse as its industrial properties make it more sensitive to economic expectations."
On industrial metals, there is a still a "long-term investment case" for owning them, noted the Noble analysts, despite the current price falls due to inflation and fears on economic growth, particularly in China.
Summing up, they said: "While the risk of further downside remains, mining company equities have underperformed the underlying commodities and the upside potential appears to favor those with a longer time horizon.
"As a means of portfolio diversification, exposure to the mining sector is beneficial and investors may want to consider junior mining companies due to attractive valuations and the potential for increased M&A and industry consolidation."
Contact the author at giles@proactiveinvestors.com