Investing in commodities has been somewhat unpopular in recent years, despite their undeniable diversification qualities (correlation 0.30 with S&P 500). Gold, at an all-time high, could be the wake-up call for other precious and industrial metals. The need for technological sovereignty, independence, and the transition to energy and digital technology, geopolitical tensions, record inflation and debt, and the risk of shortages are just some of the many arguments in favour of this asset class.
Raw materials are essential to tomorrow’s world. New sectors, such as the energy and digital transition, have high demand for raw materials such as copper, while the Trump administration has announced that it is pulling out all the stops in artificial intelligence. To illustrate the growing need, a smartphone incorporates more than 50 different metals.
A medicine against inflation
According to Alexandre Carrier, manager of the DNCA Invest Strategic Ressources fund, there could be a general upturn in the price of industrial and precious metals: “Portfolios are generally under-exposed to this class of natural resources, despite the voracious demand for strategic metals that the energy and digital transition will require. The current period bears many similarities to the 1970s and 80s, when unreal assets began to rise sharply. Today there are two opposing blocs, China and the United States, as in 1970/80, the USSR and the United States. In the early 1970s, the economic world also faced a resurgence of inflation. Unreal assets had one of their best decades ever and commodities proved their robustness in an inflationary environment.” The current trend towards de-globalisation will fuel inflation. “We are entering a new cycle,” says Jean-Charles Mériaux, DNCA Finance’s Managing Director. “New generations could face a forgotten risk: economic growth constrained by high and persistent inflation.”
Optimism
In the same vein, an analysis by Bank of America is optimistic, and even suggests that commodities could be the best investment by 2030. Its analysts are forecasting structural inflation of around 5% for the next few years, which has always been a driver of commodity prices. The rise in commodity prices is only just beginning. Gold and other precious metals, copper, and others could do well.
As for silver, which is affected simultaneously by record demand for photovoltaic panels (which require a lot of silver metal to manufacture) and a 15% shortfall in silver metal extraction! Absent at the beginning of the 2010s, solar energy and electric vehicles will consume around 35% of the world’s silver production by 2024, and are facing depleting existing deposits and an inexorable decline in yield. Note that some of the money used is potentially reusable.
“Gold and silver together account for 25% of our fund. Silver is the best conductor of all metals, making solar panels more efficient. Demand for gold has another source,” explains the DNCA Finance manager.
Two Olympic swimming pools
Central banks were net sellers of gold in previous decades, but have been buyers since 2023. Central banks in emerging countries are the most active, led by China, India, Turkey, and Poland. Distrust of Uncle Sam’s dollar is growing, with debt to GDP rising from 60% in 2004 to 120% in 2024. While gold accounts for an average of 12% of central bank reserves, the proportion held by Indian and Chinese banks remains below 10%. This compares with the US central bank, which has up to 60% gold in its reserves. The downward trend in interest rates will be a source of growth for gold prices. And if the desire was to melt all the gold in the world, it could be contained in just two Olympic swimming pools.
Among the other metals, copper is likely to shine. Without copper, it would be impossible to build wind turbines, develop electricity grids or create heat exchangers for heat pumps. Metal has become the key to the energy transition ecosystem, especially as the global economy electrifies. Copper is also an essential material for the cables used in data centres as artificial intelligence generates more needs for data centres. The International Energy Agency predicts that demand for electricity from data centres will more than double to over 1,000 terawatt hours (TWh) in 2026, compared with 460 TWh in 2022. Note that a electric car contains 30 kilos of copper… five times more than a petrol car.
Africa remains an El Dorado but…
The world is hungry for copper, with consumption set to rise from 25 million tonnes to 40 million tonnes between now and 2050, according to forecasts by EY. To cover needs over the next ten years, around forty mines will have to be opened. However, over the last decade, the number of major discoveries has risen timidly to 14. It’s true that Africa still looks like an El Dorado. But the groups have to contend with chronic political instability, as evidenced by recent coups d’état (Niger, Guinea, Gabon, Islamist movements…) or in the Democratic Republic of Congo in Goma, a region excessively rich in mineral resources.
Today, copper prices are still held back by pre-existing Chinese stocks. Aluminium is also likely to come under pressure, with green demand accounting for 20-25% according to Alexandre Carrier. Admittedly, volatility can rightly frighten investors, but the potential of commodities is very real. After a revival in this asset class at the start of 2024, we entered a consolidation phase at the end of last year in almost all segments: base metals, precious metals, according to the manager. This undoubtedly provides a favourable entry point. Most commodities are going to be affected by supply constraints in the short to medium term, while demand is holding up fairly well, although it is not yet extremely strong,” says the manager. But the market could face shortages as a result of underinvestment in mining between 2010 and 2020.
A few more figures on demand: copper requirements for electric cars + 900% by 2027, silver requirements by 2030 + 100%, nickel requirements by 2050 + 350%.
The DNCA Invest Strategic Ressources fund invests in an active strategy across a broad but concentrated universe of two themes: precious metals (gold, silver, platinum, palladium) and metals essential for transitions (copper, zinc, nickel, lead, aluminium, tin, etc.).
