The CRB Index has been flat for 15 months. Meanwhile the S&P 500 has advanced spectacularly. In Toronto, the Prospectors and Developers Conference (PDAC) has started this week in a depressed mood.
The CRB index is an index of commodity stocks, while the S&P 500 is broadly based, tilted toward technology.
In the US the housing market has shown signs of recovery. The auto sector has had solid sales. Financials have risen.
For investors of commodity stocks these are not great days, with share prices lagging. The mood at PDAC, the largest mining trade show in the world is notably downbeat.
BNN reports “Commodity prices are down, although still not bad historically. But costs are way up. Margins are narrower. Big, bad deals have changed leadership at the top of some of the world’s biggest miners. In fact, gold miners are so out of favour, some are changing they way they report expenses just to get investors interested in the sector again. The lack of financing in the junior sector could be an extinction level event for companies with marginal projects or in risky jurisdictions. Even the lower-risk royalty sector, once dominated by only a couple of companies, is looking crowded.”
In the real economy, the lagging stock market in commodities means it is difficult for mining companies to raise capital and hard for oil producers to fund capital projects. In short a sour CRB means lower growth for the north.