Head of BofA Global Research
This week we discuss encouraging news regarding the pandemic, an op-ed in Barron’s on shifting supply chains, and reasons to be bullish for precious metals.
After a global surge that lasted more than two months, there are some encouraging trends regarding the pandemic. Global Economist Aditya Bhave cites global cases have flattened, led by developments in the US, India and Brazil, which make up 25% of the world’s population but 60% of cases.
Cases have peaked without re-imposition of lockdowns, demonstrating that careful reopening is possible without causing another surge in the virus. Globally, better treatments and spread to a younger cohort kept deaths from rising even as the number of cases rose in June-July, which makes countries less likely to reinstitute lockdowns.
Despite the high level of cases in India, the low mortality rate for underprivileged populations suggests the risk to other low-income emerging market countries may not be as bad as feared.
Candace Browning authored an article in Barron’s based on BofA’s Global Research theme centered on the cost of remaking supply chains. She describes how Covid-19 has exposed fault lines in the global supply chain by highlighting BofA’s new study which finds companies in over 80% of global sectors have experienced disruptions in their supply chains during the pandemic.
While disruptions from Covid have acted as an accelerant, she believes the underlying structural reasons are grounded in a tectonic shift to “stakeholder capitalism” where corporations focus on shareholders’ interests, as well as a broader community of consumers, employees, and the state.
Candace explains that although the reshoring proposition is accompanied by some trepidation about higher costs, surprisingly our headline conclusion is that it would be manageable. In fact, her team believes that a $1.0 trillion capex cycle could substantively remake supply chains without a prohibitive impact on corporate profitability.
How high can the yellow metal go? Our commodity strategists believe the current macro-economic backdrop is bullish for precious metals, with gold benefiting from low and falling real rates, at the same time as central banks are backstopping fiscal spending.
They reiterate BofA’s 18-month gold price forecast of $3,000/oz. and think silver could rally to $50/oz. in the medium term, noting demand should strengthen on the back of announced stimulus packages that have a green component.
This matters for MIFTs (metals important for future technologies) as a reduction in the usage of fossil fuels means the world needs to be powered by alternative solutions, which typically require mined commodities.
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