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Brexit ‘not a game changer’ for commodities

Research house Capital Economics expects other drivers to play a bigger part now that the referendum is behind us, while Randgold Resources stands to benefit from Brexit...
copper wire
The price drop in commodities like copper isn't expected to last

The drop in prices for industrial commodities like oil and copper - down 5% and 3% respectively this morning - are not expected to last, not according to Capital Economics.

Julian Jessop, Capital Economics head of commodities research, in a note said: “these moves are already starting to unwind.

“Once the dust has settled on the shock result, we suspect that the prospects for all these commodities will be determined by other, more specific factors.”

He added: “It was always likely that the negative impact of a Brexit vote on business and investor confidence would feed through into lower prices for riskier assets of all types, including industrial commodities.”

 

Miners to benefit from Brexit, fall in pound

Charles Gibson, analyst at Edison Investment Research, in a note, highlighted that Britain’s domestic output is currently very limited, but, there are good reasons to buy mining shares.

He notes that for mining companies there is a ‘translation effect’ between earnings, denominated in US dollars, and share prices that are quoted in sterling.

“A weak pound would increase the sterling value of dollar denominated earnings and provide a one-off perception of cheapness relative to other UK-quoted companies,” Gibson said.

“In this case, almost all UK-quoted mining companies can be seen as effective Brexit hedges.”

He highlighted Randgold Resources Limited (LON:RSS), London’s largest gold miner, as a particular beneficiary of such circumstances.

“It’s probably not what management had in mind when they founded the company and set it on its path some twenty years ago, but yet again RRS appears to be in the right place at the right time to give investors the best chance of suffering the slings and arrows of outrageous fortune whilst generating a profit at the same time.”

As a producer of a ‘safe haven’ commodity like gold, Randgold is also attractive as a defensive play on the current volatility.

Shares in the gold mining and exploration firm were up 870p, or 13%, to 7325p at close of play on Friday.

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