Zinc and Lead in 2016: Buy and Hold?

Thursday, February 18, 2016

While precious metals like gold and silver appear to be coming around to a bull market, investors who consider the entire swath of metal prices aren’t so sure about industrial and base metals including zinc, lead, tin, and nickel.

Does that mean that zinc and lead are bad plays at the moment? Not necessarily. True: Goldman Sachs has indeed dropped its 2016 forecasts for zinc, lead, and nickel recently, citing low demand and a host of other factors from China in its report. But some who hold a different view of these base metals find that they’re not entirely concerned about a dip in 2016 forecasts, as the “buy and hold” strategy might actually mean a year of affordable prices could be fortunate for longer-term investors.

There’s no way of knowing the future, of course. But let’s take a look at some of the developments for zinc and lead from the “buy and hold” perspective.

Thinking Beyond a One-Year Horizon

Zinc and lead may indeed not have an overly optimistic projection by 2016 standards—but then again, neither does the stock market. That isn’t stopping investors from pouring money into stocks and equities.

It may well be the same with zinc and lead. Even as far back as 2013, some news outlets noted that a potential dip in zinc and lead supplies could mean a good long-term investment in zinc and lead on a horizon of five to ten years—a horizon that remains well past 2016. A MoneyWeek report said, “the discovery-to-production ratio for zinc is 0.7. And for lead, it’s 0.5. That points to a huge shortfall. Discovery rates won’t even match current production, let alone maintain future supplies.”

What does this all point to? That 2016 might be a pessimistic year for the metals, but that doesn’t necessarily mean you need to abandon the idea of zinc and lead investments, either. If you’ve held a “buy-and-hold” opinion of zinc and base metal stocks, it might not be time to get out just yet.

Warren Buffet and the Case of Oil

Oil is not zinc and lead. However, oil prices are exceedingly low and don’t show signs of any big movement any time in the future. That hasn’t stopped Warren Buffet from “betting big on oil stocks,” as noted recently. In fact, the investment whiz’s mantra always seems to be venturing where other investors fear to tread—with a cautious eye, of course.

That doesn’t mean that Warren Buffet is buying into zinc and lead, and it doesn’t mean that you should make your investments based on where the low prices are.

But it does serve as a reminder that all of your investments shouldn’t be guided by “bull market” news, either. In the case of zinc and lead, low prices can represent an investment opportunity if you believe that low overall supply will drive prices up over the next decade. As with all investments, make sure to weigh each decision carefully before plunging deeply into the market.

Darren Capriotti

Darren Capriotti has been a market analyst for the past decade and is an expert in precious metals. He prides himself on his ability to analyze the market and offer true value to investors with questions about gold, silver, and other precious metals. Highly educated, incredibly passionate, and more accurate than most, Darren offers a true, unbiased look into what investors can expect in the precious metals market. You can reach Darren at dcapriotti@gold-eagle.com.