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An employee adjust plates at HudBay's zinc plant in Flin Flon, Man.

Brian Pieters/THE CANADIAN PRESS

Seasoned investors know that commodity cycles are long and slow affairs that build up to a really great party that ends with a long, lingering hangover. Right now, for most commodities, we are in the hangover phase.

Plenty of culprits can be blamed for the pain. We face a mine overcapacity, as operations that were financed in the boom times are now up and running. An aging population in most of the developed world is responsible for slowing consumption. Developing economies have slowed, headlined by China, which has been increasingly counted on as a global engine.

Commodities usually get hammered in economic downtowns and, even in this tepid recovery of the past seven years, most are well off their prebubble peak prices. That means commodity watchers have to pick and choose more so than in boom times.

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"Slow, steady growth is kind of what we are calling for globally, and in that type of environment we drill down into the different supply-demand fundamentals of the different commodities," says Brahm Spilfogel, vice-president and senior portfolio manager for Canadian and global equities at Royal Bank of Canada Global Asset Management.

His focus is on China, which consumes between 40 per cent and 60 per cent of most non-energy commodities. "When they catch a cold it is quite negative for industrial commodities."

He provides the example of copper, a building and industrial material that serves as a good proxy for economic growth. Prices fell in 2014 and 2015 when Chinese demand slowed and future growth momentum was uncertain. Copper remains in a state of oversupply thanks to a wave of mine spending during the high-demand boom earlier this century, and that will likely persist until the end of the decade.

Among key base metals, zinc looks like it has the most going for it in the short term, with prices forecast to rise from an average of 85 cents (U.S.) a pound in 2016 to $1.25 in 2017 and $1.55 in 2018, according to a forecast from Rory Johnston, a commodity economist at the Bank of Nova Scotia.

Mr. Johnston says nickel will be in zinc's sweet spot in a year or two. The metal enjoyed a price bounce back in July but "near-record" global inventories may put a ceiling on further price gains, he says. "It will be a similar story to zinc, but delayed a year and a half to two years, in my estimation."

Of all the commodities, the most unique and most watched is gold, which is still primarily transformed into jewellery but is also prized for select industrial uses and as a store of wealth because it is considered a potential hedge against inflation.

It is that role as an inflation fighter that could provide a near-term boost to bullion prices, says George Topping, a mining analyst with Industrial Alliance Securities in Oakville, Ont. He noted that gold this week broke through its 200-day moving average of $1,274 (U.S.) an ounce and is recovering from a September price swoon.

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Inflation fears are responsible for the October rebound, Mr. Topping says.

"After printing all this money, not only in the U.S. but also Japan as well as Europe, at some time the inflation fears are going to come to the fore," he says. "Never in the history of the world have you been able to try and competitively debase your currency or increase the money supply so much that you haven't caused inflation. So eventually it will come."

On the supply side, production growth in gold has been slower than Mr. Topping has expected. He is forecasting an increase of just 3 to 4 per cent in supply over the rest of the decade.

He recommends that investors gain exposure to higher gold prices by purchasing the SPDR Gold Trust exchange-traded fund (GLD), the largest ETF to invest directly in physical gold.

Another lower-risk way for investors to bet on a recovery in the price of gold is to buy shares in gold royalty companies such as Franco-Nevada Corp. and Sandstorm Gold Ltd., which provide financing to other miners in return for a slice of their production.

More adventurous investors "can start going into the equities," Mr. Topping says. Barrick Gold Corp. and Goldcorp Inc. "are two of the large caps, and then you can work your way down to the smaller producers. It really comes down to your risk appetite and how you want to play it."

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RBC's Mr. Spilfogel is also a fan of the shiny metal.

"This low-interest-rate environment is a positive environment for gold, and as competing assets get bid up in terms of their valuation, gold kind of shows up as an alternative for people to put their investments into," he explains.

Emerging markets led by China and India continue to buy up almost 50 per cent of annual gold production.

"So long as there is momentum for an alternative for people to put their money [into], particularly in a world of negative interest rates in Japan and Germany, that creates positive momentum in the ETF market for gold."

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