Just like with the stock market, commodity prices fluctuate.
They go up, then they go down.
It’s a tale as old as time.
Recently, one commodity, zinc stocks, got a kick in the pants thanks to the coronavirus pandemic. Prices dropped 27% as demand fell off a cliff over three months.
Companies mining this precious metal shut down because low prices meant mining wasn’t profitable.
As you can see in the chart above, zinc prices rose sharply from 2016 to 2018 because supply was dwindling.
But zinc stocks are poised for another strong rally and I’m going to tell you how to capitalize.
This Time, Same As the Last Time
Banyan Hill Publishing’s Matt Badiali said demand for zinc is on the way down.
“Commodity analysts at giant bank BMO Capital Markets project a 6% fall in zinc demand in 2020,” said Badiali, the Editor of Real Wealth Strategist. “While 6% doesn’t sound like much, it’s enormous. The recent decline in zinc price came from just 1% to 2% oversupply expectations.”
If 2% means the kind of a drop we saw in the chart above, wait till you see what a 6% drop does to prices.
And demand isn’t the only place where zinc is seeing cuts.
“On the supply side, we will see major cuts as well. Mexico and Peru produce 16% of the world’s zinc. Government-mandated closures shut down production there,” Badiali said. “Even Hindustan Zinc, the fourth-largest zinc miner in the world — which produces a million tons of zinc per year in India — closed due to the pandemic.”
Where Are Zinc Stocks Going Next?
He said it’s going to take the rest of this year for the market to figure out what’s going on.
But as the economy starts to get back online, demand will recover and prices will follow suit.
“After hitting a bottom in 2016, zinc prices soared over 140% in two years. Analysts don’t expect a repeat of the 2015 market,” Badiali said. “However, I think we’re going to see a faster, steeper recovery. Demand can return faster than miners can ramp back up. And there are some headwinds for the reopening mines.”
Companies that can’t afford to produce at low prices will be slow to recover. That will push supply lower which, in turn, moves prices higher.
“That’s just the way these markets work — in cycles. And we’re near a bottom in zinc,” he added.
How to Profit From the Zinc Cycle
One thing to remember is that there isn’t a good or easy way to play zinc stocks.
However, one of the best ways to capitalize on gains in precious metals is to invest in the iShares MSCI Global Select Metals & Mining ETF (NYSE: PICK).
One thing to keep in mind is that this exchange-traded fund doesn’t just track zinc stocks, but miners and metals of various types.
The other thing to remember is that not every precious metal is going to go up the same way.
But PICK just crossed above its 200-day moving average and is showing momentum of a continued uptrend.
If you were going to get into zinc stocks and trade its upcoming price gains, now is a good time.
