Favouring copper and gold as oil stalls in 2026

Text transcript

Welcome to Advisor to Go, brought to you by CIBC Asset Management, a podcast bringing advisors the latest financial insights and developments from our subject-matter experts themselves. 

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Daniel Greenspan, CIBC Asset Management, senior analyst and portfolio manager 

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Heading into 2026, we’re mostly constructive on the outlook for commodities, with a preference for gold and copper over oil. I’ll take a couple of minutes to go through our view on each commodity, highlighting the major macro drivers currently shaping our outlook, and then I’ll share some of our top equity picks that we are invested in to express our commodity view. 

I’ll start with copper, a commodity which has consistently been hitting all-time highs over the last couple of months. The story in 2025 was really driven by the supply side. Demand for copper has been okay, but the supply side has had some significant shortfalls in production this year that has created tightness in the market. A couple of major copper mines around the world have experienced significant operational issues over the past year, and that’s taken meaningful volume of copper out of the global market. 

We expect that most of these operations will return — albeit not at production levels previously expected, but with increasing tonnage throughout the year. We will be looking for signals of ongoing demand growth for copper into 2026 for the next leg higher in the copper price. Should demand growth fail to meet expectations, we think the copper price could experience some headwinds in 2026 if supply ramps back up and demand growth isn’t there to absorb the volume. 

Looking a bit further out, over the medium term we remain very constructive on the copper price outlook. We continue to expect the electrification theme will be a significant driver of incremental demand for copper over the medium to long term. We view copper as a derivative of the data centre and AI trade, as power demand is expected to grow significantly over the medium to longer term to service these new data centres. Power infrastructure is generally copper intensive, and the power sector will be a source of new demand for the red metal over the coming years. 

With the copper market close to balance now, we expect demand growth from the power sector and from more traditional sources of demand to outpace copper supply growth over the medium term, and as a result, we expect the price to rise. 

Our top equity picks in the copper sector are Teck Resources and Hudbay Minerals. For Teck, the company is in the middle of a merger with London-listed miner, Anglo American. While we don’t love the price the deal is getting done at, the industrial logic of putting the two companies together makes sense. 

Teck shareholders have already voted in favour of the deal, and we now expect the stock to trade at a modest discount to the Anglo bid price until all regulatory approvals are received. 

We do still see company specific catalysts for Teck in the near to medium term that can help drive out performance in the stock, specifically showing progress on the fixes planned at their flagship QB2 mine, and ramping that asset up towards full production in 2027. Risks remain around delivery of QB2, but the Anglo bid provides downside protection should QB2 falter again. 

Hudbay, which is a mid-cap Canadian-listed copper producer, is a company with good copper exposure, a solid base of operations in Peru, Manitoba and British Columbia, and has growth options in the U.S. Things we like about Hudbay are that it offers a solid, stable base of operations, good copper growth in the U.S., where there’s an increased focus on copper as a critical mineral, and the company also offers some exposure to gold, where we have a constructive outlook into 2026. The company’s balance sheet is in good shape. We see exploration upside at key assets, and the valuation relative to peers remains compelling. Hudbay is our top pick in the mid-cap copper space. 

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Next, turning to precious metals, we remain constructive on the gold price as we head into 2026. The call from here is probably not as easy as it was a couple of years ago, heading into a rate-cutting cycle, but we do still see supportive factors for gold into 2026. 

With the most recent Federal Reserve rate cut in December. The decision was not unanimous, but rather was approved nine to three, with one Fed governor calling for a 50-basis-point cut and two others calling for no cuts. Remember that gold is sensitive to the U.S. rate cycle, as lower interest rates reduce the opportunity cost of holding gold. So gold tends to outperform in a falling interest-rate environment and underperform in a rising interest-rate environment. We do still forecast multiple rate cuts next year from the Fed, which we expect to be supportive for gold in 2026. 

Similarly, we think the ongoing theme of de-dollarization will continue to be a tailwind for gold in 2026. We expect global central banks will continue to buy gold in the coming year to diversify their portfolios. We expect gold will continue to grow as a percentage of the total reserve assets held. Central bank purchases of gold will ebb and flow with the gold price, but ultimately, we think the underlying motivations are less price sensitive, and purchasing will continue despite gold hitting record highs. The motivations for central banks purchasing gold include global economic uncertainty, security uncertainty, inflation, tariffs and China’s push to promote the yuan as a reserve currency. 

Finally, given the heightened level of geopolitical uncertainty around the world right now, we think gold should have an allocation in investors’ portfolios as a hedge against known and unknown risks. Gold has historically proven to be a good counter-cyclical hedge to a wide range of tail risks. 

In terms of risk to the gold price outlook into the next year, a slower pace of Federal Reserve rate cuts, stability or strength in the U.S. dollar, and/or a general reduction in geopolitical risks around the world could all be headwinds to the gold price into 2026. That said, we remain constructive on gold into next year, as we think the balance skews to the upside for the price. 

With that outlook in mind, we remain overweight gold across many of our portfolios. 

Our top picks on the equities are Barrick Mining in the large-cap space, and Alamos Gold and G Mining in the mid-cap space. 

For Barrick, we see value in the company at the current stock price that can be surfaced if the company can execute. Barrick’s operational improvements, along with balance sheet strength, are reducing the value trap perception. The asset quality is too high, and the growth options, while challenging for different reasons, are too good. 

Fourmile in particular, which is a growing deposit in Nevada, has world-class potential, and the Rico Diq asset is a great development asset, albeit located in a challenging jurisdiction. In our view, we think most of the issues that have impacted Barrick over recent years are fixable. We do think that the right strategic decision and execution on the production and growth plans can surface the underlying value of this company, allowing the multiple to expand. In the near term, operations are moving in the right direction at key assets, and Barrick is our top pick in the senior gold sector. 

In the mid-cap space, we view Alamos Gold as a core strategic position to hold as it executes on its strategies to enhance the value of its Island Gold complex in Ontario. We see multiple levers Alamos can pull that can get Island to a position where it’s one of the most valuable low cost, tier-one assets in Canada. We like mining companies that have regional advantages and lower risk jurisdictions, which Alamos has in Canada. Alamos has a solid management team, a pristine balance sheet and a track record of responsible capital allocation. 

Finally, G Mining is a mid-cap Canadian-listed gold producer that we are constructive on. We believe that the valuation for G Mining is underpinned by a highly capable management team with a proven track record of delivering projects on time and on budget, making it a unique company in the intermediate gold sector. 

The recent successful construction and ongoing ramp up of the TZ mine demonstrates operational expertise, and sets the stage for replicating this success at their flagship Oko West project. As the market still largely views G Mining as a single-asset producer, there is meaningful rerating potential as Oko West is de-risked and the company transitions to a multi-asset, multi-jurisdiction intermediate gold producer. 

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Next, turning to energy, our outlook for the oil market in 2026 remains generally subdued. We expect West Texas Intermediate crude oil to trade within the $55 to $65 a barrel range, which is consistent with our forecast for 2025. 

The narrative for 2026, particularly in the first half of the year, is expected to be supply side driven. We’re closely monitoring the manner in which OPEC’s spare capacity is being reintroduced into the market, specifically focused on the pace and the magnitude of these barrels coming back. 

Producer compliance with their quotas remains a critical focal point for the market participants as well. 

Additionally, the enforcement and effectiveness of new sanctions on Russia will warrant attention, specifically regarding the extent to which Russian exports are curtailed. In our view, the impact of sanctions may be less significant than some market participants have indicated. Some research has projected reductions of up to 1.5 million barrels per day, but we anticipate that China and India will continue to seek opportunities to capitalize on discounted Russian oil through available loopholes, and we expect that Russian oil will continue to flow. 

Finally, we expect U.S. shale production to show a modest year-over-year decline by year-end 2026, which is in line with our constrained oil price outlook. The modest decline in U.S. production expected at these lower prices could provide some support for a $55 per barrel price floor. 

On the demand side, while we do not expect demand to be the primary driver of price action in 2026, we will continue to monitor Chinese import activity. We also remain focused on potential demand implications from U.S. tariffs, which to date, have had a relatively muted effect. 

In summary, our perspective for 2026 in the oil market is largely shaped by supply-side factors, ongoing geopolitical developments and measured demand. 

Given our somewhat subdued view into next year, we are more comfortable with exposure in some of the lower-beta energy infrastructure stocks. Companies like Pembina and TC Energy are core holdings in our portfolio. On the oil producer side, Cenovus is our top pick. 

For Pembina, we view this as a high-quality company backed by balanced commodity exposure, strong upstream customers and a balance sheet that’s in good shape. We see a company with a good runway of growth projects, both smaller and medium to larger scale. The management team is solid as well, and we view the stock as undervalued at current levels. 

TC Energy is another energy infrastructure company that we have a favourable view on. We like the exposure to natural gas and nuclear that TC Energy provides, and we think that the stock should trade at a premium valuation to its infrastructure peers. 

Finally, looking upstream at the U.S. oil producer space, our top pick is Cenovus. We believe this company has hit an inflection point, particularly regarding its downstream operations, which has been a primary area of concern for the market over the past couple of years. We recently toured their Toledo refinery, and left encouraged by our observations and expect continued improvements in downstream performance following the completion of maintenance and upgrading activities, and substantial changes in personnel. 

Furthermore, the recently closed acquisition of MEG Energy is expected to generate substantial synergies for Cenovus, adding high-quality upstream assets that will underpin the company’s growth strategy. The balance sheet is approaching its target, and we expect to see meaningful improvements in shareholder returns as these milestones are being achieved. 

Looking ahead, we recognize the potential for monetization of certain gas assets in 2026, which could further enhance the company’s shareholder return profile. Finally, we also view the valuation as attractive at current levels. 

Putting all that together, Cenovus is our top pick in the Canadian upstream oil producer sector.

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