Categories: Base Metals / Energy / General Market Commentary / Precious Metals
Topics: General Base Metals / General Energy / General Market Commentary / General Precious Metals

Sprott's Thoughts 2016 in Review

Sprott's Thoughts 

2016 in Review

Now that we have two weeks of the New Year under our belts, we wanted to take a look back at 2016 and extend a hearty thank you to all our Sprott clients and Sprott’s Thoughts readers. Natural resource investing is never a dull affair, and 2016 was certainly no exception. Without a doubt 2017 will provide a new set of opportunities and challenges, and we are encouraged by a return of outside capital and interest to our space. Below we highlighted some of the major events impacting our industry in 2016, the lessons we’ve learned, and our expectations for 2017.

1H 2016

For commodities, 2016 was a tale of two halves. The first six months of the year were marked by an astonishing uptick in spot prices that reignited investor interest and brought capital back into the system. Gold in particular led the way, up nearly 20% in six months. Oil prices climbed 25% from $39 per barrel at the end of March to nearly $50 per barrel. Agricultural commodities, such as soybean meal, sugar, corn and cotton, posted gains for the second quarter. Lumber finished the first half of 2016 up nearly 18% for the year. Base and precious metals expanded upon first quarter gains to advance their rebound from 2015’s doldrums[i].

Altogether, commodities far outpaced the rest of the U.S. economy. The S&P GSCI Index, a barometer for the commodity sector, finished the first six months of 2016 up 19.1%, double that of the S&P 500, which rose 9.6% in the same period.  In all, investors were reminded of the role natural resources can play in a well-balanced portfolio.  Specifically, that natural resources can not only outperform the more broad based market but can also smooth out returns over time since they are less correlated, resulting in a more stable long term portfolio.

2H 2016 The second half of 2016, with headlines crowded with political surprises on both sides of the Atlantic, gave back many of the gains made. First, the news of Brexit on June 23rd, sent shockwaves throughout the world’s markets, and investors moved strongly to gold as their safe haven asset, trading up an astounding 8.2% in a mere 13 days after the vote to the year’s high of $1366. Silver followed suit. Over the same time period, the GBP/USD plummeted 11% and U.S. 10-year yields dropped almost 20% that night. Anecdotally, this demonstrates gold and silver’s special treatment in the market. Amid growing geopolitical uncertainty, precious metals are seen as not only a safe haven asset, but as liquid currencies as well. 

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