With leading indicators pointing to vulnerability for commodity prices into the fourth quarter of 2011, RBC Capital Markets is warning that metals prices and equities are most at risk to a growth slowdown. Myles Zyblock, the firm’s chief institutional strategist, told clients to favour energy and gold over metals in this environment.
“Industrial metals are most sensitive to changes in economic growth,” Mr. Zyblock said in a research note. “These commodities typically underperform energy and gold as the pace of economic activity slows.”
The strategist highlighted the OECD’s leading economic indicator, which provides a 6-month lead on the CRB index and suggests commodity price momentum will likely fade into September. RBC’s longer-leading measure of liquidity echoes that message, but points to a potential positive turning point in the price outlook by the fourth quarter.
Mr. Zyblock noted that a peak in corporate utilization rates often confirms the end of price leadership by industrial metals. At the same time, he said industrial metals typically outperform energy when the U.S. dollar is under pressure.
