The Economist magazine has become well-known for its “recession index”. A metric that seeks to predict recessions by measuring how many times the word “recession” appears in major publications like the Washington Post and New York Times during each quarter.
The same sort of thinking might be applied to a “zinc index” today.
Zinc seems to be getting a mention everywhere these days. I talked last week about how analysts Wood Mackenzie have said zinc will be the star of the base metals complex over the next few years.
And this week we got another bull call on the metal. From Goldman Sachs, who singled out zinc and lead as the only metals among a list of favoured commodities for investing today.
Here’s the interesting thing about the growing number of bullish mentions for zinc lately: the metal’s backers don’t seem to have united reason for their sudden enthusiasm.
Wood Mackenzie cited low gold and silver prices (causing a loss of by-product zinc production) as the main reason for their pro-zinc stance.
Goldman this week said they like the metal because of “mine closures and the lack of cost deflation that drives the other metals”.
The only thing these groups seem to agree on is that zinc is going higher, for some reason. Making it tempting to wonder if the emerging push behind the metal is a form of “sector rotation”. Where big investors grow bored and edgy about the current hot investment, and look to move onto a new story. One that’s perhaps unloved at the moment.
(This jives with another part of this week’s Goldman note, where the group talks down the current “hot” metal, copper. Saying that copper today has “significant downside opportunity”.)
Of course, the reasons being given for coming zinc resurgence sound perfectly reasonable. But psychology is such that once people decide to get behind a cause, they tend to be very good at coming up with reasonable-sounding explanations to rationalize their beliefs. Whether or not those explanations turn out to be true is a different story (as I mentioned last week, the numbers on Peruvian zinc production don’t seem to support Wood Mac’s gold-silver linkage theory… yet).
But I’m getting the feeling that if the momentum for zinc keeps mounting, the veracity of the arguments behind it may have little import for the moment. Snowballing enthusiasm over the next big thing might boost the metal (and perhaps stocks of producers) regardless of the market realities, at least for the time being.
Here’s to another tally on the zinc index,