The global banking crisis continues… and markets are nervous.
Since early March, global stock indexes have been volatile. Even though the collapse of Silicon Valley Bank and the controversial takeover of Credit Suisse by UBS (both are Switzerland-based banks) have not caused a market-wide panic yet, traders have been watching these events with unease.
Other investors have been buying “safe haven” assets in the meantime.
These include government bonds and commodities like gold.
And, in our view, they are right.
This looks like the perfect moment to start investing in commodities.
Here is why.
The Banking Crisis Has Been Contained (So Far)
Nobody wants a recession. Especially right now, when inflation is running hot.
In fact, “stagflation,” or the combination of an economic decline and high inflation, is every central banker’s worst nightmare.
A recession would cause high unemployment. Combine that with high prices, and you have millions of people out of work and with no access to jobs trying to survive amid soaring life expenses.
It would be a disaster… and a social timebomb.
Politicians and central bankers are willing to do whatever it takes to avoid this scenario.
And so far, they have been successful.
The Federal Reserve and other central banks have joined forces and decided to provide the global banking system with access to liquidity. This makes sure that banks around the world are not constrained for funds. And that they can continue lending to businesses and households.
These measures should help reduce any immediate risks to the global financial system.
They may not eliminate them completely, however. We could see more bank failures or near-failures this year.
But commodities, which is one of our key focus areas here at the Financial Star, should not feel the impact of the volatility in the banking space.
Commodities Have Almost No Exposure to the Banking Fallout
Commodity traders, or the “smart money” in the business, are betting that this asset class will navigate the choppy waters of the banking crisis successfully.
Trading giants such as Citadel and Trafigura have said that they don’t expect commodity prices to crash as they did in 2008.
First, the recession, if one happens, will likely be short-lived and not too deep.
The US and other leading economies are in good shape. Unemployment is low, and so far, consumers have managed to navigate high inflation.
Second, there is plenty of government support for the commodities sector. Especially the “new energy” sub-sectors such as lithium, hydrogen, rare earth elements, and others.
The US government’s Inflation Reduction Act (or IRA) has outlined $370 billion in investments, part of which will go into the commodities sector.
Wind turbines require a lot of copper, steel, and other commodities.
You cannot build clean energy infrastructure without these materials. And both the government and private investors know that.
In other words, we do not foresee a shortage of investment funds flowing into some of the most exciting commodity-related megatrends that we are watching.
Regardless of what happens in the global banking industry, the commodity megatrend should continue.
And as a result, we are as bullish on commodities as ever.
Thank you for your loyal readership,
The Financial Star team