Visit our new website: worldnews.easybranches.com

Miners Getting Back to Work

  • Sun, 13 Aug 2017 13:27

Major U.S. indices slid for a second straight week as President Donald Trump and North Korea both escalated their saber-rattling, with Kim Jong-un explicitly targeting Guam, home to a number of American military bases, and Trump tweeting today that “Military solutions are now fully in place, locked and loaded.” The S&P 500 Index fell 1.5 percent on Thursday, its largest one-day decline since May. Military stocks, however, were up, led by Raytheon, Lockheed Martin and Northrop Grumman.

Get The Full Series in PDF

Get the entire 10-part series on Charlie Munger in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

We respect your email privacy

As expected, the Fear Trade boosted gold on safe haven demand. The yellow metal closed just under $ 1,300, a level we haven’t seen since November 2016. This week, Ray Dalio, founder of Bridgewater Associates, the largest hedge fund in the world, said it was time for investors to put between 5 and 10 percent of their portfolio in gold as a precaution against global and domestic geopolitical risks. The threat of nuclear war is at the top of everyone’s mind, but Dalio reminds us that our indecisive Congress could very well fail to agree on raising the debt ceiling next month, meaning a “good” government shutdown, as Trump once put it, would follow.

Dalio’s not the only one recommending gold right now. Speaking to CNBC this week, commodities expert Dennis Gartman, editor and publisher of the widely-read Gartman Letter, said that he believed “gold is about to break out on the upside strongly” in response to geopolitical risks and inflationary pressures. Gartman thinks investors should have between 10 and 15 percent of their portfolio in gold.

Government shutdowns haven’t always been harmful to the stock market—during the last one, in October 2013, stocks actually gained about 3 percent—but I agree that it might be prudent right now for investors to de-risk and ensure their portfolios include safe haven assets such as gold and municipal bonds. Dalio and Gartman’s allocation percentages mirror my own. For years, I’ve recommended a 10 percent weighting in gold, with 5 percent in bullion and 5 percent in high-quality gold stocks, mutual funds and ETFs.

Get The Full Ray Dalio Series in PDF

Get the entire 10-part series on Ray Dalio in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

We respect your email privacy

Analysts Bullish on Metals and Commodities

Weaker US Dollar helped commodities beat the market in july

click to enlarge

Like stocks, the U.S. dollar continued its slide this week. This has lent support not just to gold but also commodities, specifically industrial metals. The Bloomberg Commodity Index actually beat the market in July, the first time it’s done so this year.

If we look at the index’s constituents, we find that six metals—aluminum, copper, zinc, gold, silver and nickel—have been the top drivers of performance this year, thanks to a weaker dollar, China’s commitment to rein in oversupply and heightened demand. According to Bloomberg, an index of these six raw metals has jumped to its highest in more than two years.

Some market observers believe this is only the beginning. Guy Wolf, an analyst with Marex Spectron Group, told Bloomberg that he doesn’t “see anything” to make him doubt the firm’s belief that metals “are now in a bull market.”

“As people start to realize that the reasons for prices going up are robust and sustainable, that’s going to bring more money into the market,” Wolf added.

This bullish sentiment is shared by Mike McGlone, senior commodities analyst with Bloomberg Intelligence, who writes that commodities’ strong performance in July  “could be the beginning of a trend.”

“Supported by demand exceeding supply, on the back of multiple years of declining prices, a peaking dollar should mark an inflection point for sustained commodity recovery,” McGlone says.

I can’t say whether we might eventually see the highs of the commodities supercycle in the 2000s, but this news is certainly constructive.

Aluminum Liftoff

The top performer right now is aluminum, up more than 20 percent year-to-date. This week it breached $ 2,000 a tonne for the first time since December 2014 and is currently trading strongly above its 50-day and 200-day moving averages.

US ISM non-manufacturing PMI sinks to 11 month low in july
click to enlarge

Demand for aluminum is growing in the automotive and packaging industries, its two key markets. With consumers and governments demanding better fuel efficiency, automakers are increasingly turning to aluminum, which is around 40 percent lighter than steel. According to Ducker Worldwide, a market research firm, the amount of aluminum used to build each new vehicle will double between the early 2010s and 2025, eventually reaching 500 pounds. That’s up from only 100 pounds per vehicle, which was the case in the 1970s. Airline manufacturers such as Boeing and Airbus are also expected to increase demand for the lightweight metal.

Supply-side conditions are also improving. Prices have struggled in recent years as China—which accounts for roughly 40 percent of world output—flooded the market with cheap, and often illegal, metal. Recently, however, the Asian giant has called for dramatic capacity cuts in a number of provinces. By the end of 2017, an estimated 4 million metric tons of capacity will have closed, or one-tenth of the country’s total annual output, according to MetalMiner.

Also supporting prices is the Commerce Department’s decision this week to slap duties on aluminum coming into the U.S. from a number of Chinese producers that were found to be heavily subsidized by the Chinese government. Subsidy rates range in size from 16.56 percent to 80.97 percent for at least five separate companies.

The Virginia-based Aluminum Association applauded the decision, saying that its members “are very pleased with the Commerce Department’s finding and we greatly appreciate Secretary [Wilbur] Ross’s leadership in enforcing U.S. trade laws to combat unfair practices.”

The aluminum industry, the trade group says, supports more than 20,000 American jobs, both directly and indirectly, and accounts for $ 6.8 billion in economic activity.

Miners Getting Back to Work

There’s perhaps no greater signal of a shift in sentiment than an increase in mining activity as producers take advantage of higher prices. Bloomberg reported this week that the number of new holes drilled around the globe has accelerated for five straight quarters as of June. What’s more, drilling activity so far this quarter, as of August 7, suggests that number could extend to six quarters.

US ISM non-manufacturing PMI sinks to 11 month low in july
click to enlarge

I believe activity will only continue to expand as China pursues further large infrastructure projects, which will require even more raw materials such as aluminum, copper, zinc and other base metals. And I still have confidence that Trump and Congress can deliver on a grand infrastructure deal—the president has been turning up the heat on Senate Majority Leader Mitch McConnell, writing on Twitter that the Kentucky senator needs to “get back to work” and put “a great Infrastructure Bill on my desk for signing.”

With government spending on infrastructure falling to a record low of 1.4 percent of GDP in the second quarter, such a bill would help modernize our nation’s roads, bridges,

The post Miners Getting Back to Work appeared first on ValueWalk.

ValueWalk

Tags


US Weekly

Related Stories

Guggenheim's Minerd warns of a possible replay of 1987 stock market crash
  • Wed, 21 Feb 2018 05:29

NEW YORK (Reuters) - Investors should brace for a possible replay of the 1987 stock market crash later this year, given this month's slump came agains...

I Tried Blue Apron and You Can Too
  • Wed, 21 Feb 2018 02:30

This post is sponsored by Blue Apron. We have a special offer just for Billfolders: the first 50 readers will get $ 40 off their first two weeks with...

Ripple May Be Just The Beginning Of Blockchain Use By Banks
  • Tue, 20 Feb 2018 22:31

Blockchain technology is taking the financial world by storm, and not just because investors are pouring into cryptocurrencies. Despite resistance by ...

Singapore promises not to cane suspected bank robber if UK sends him back to face trial
  • Tue, 20 Feb 2018 20:21

Singapore has agreed not to cane a man accused of carrying out a rare bank robbery in the city state if Britain extradites him to face charges, offici...

KFC shuts more stores in chicken chaos
  • Tue, 20 Feb 2018 19:36

Hundreds of the chicken chain's UK outlets remain shut following "issues" with new delivery firm DHL. BBC News - Business

Ex-UKIP leader Henry Bolton back with girlfriend Jo Marney
  • Tue, 20 Feb 2018 18:35

Henry Bolton hints at possible wedding bells after saying he is back together with Jo Marney. BBC News - UK Politics

HSBC profits jump to $17.2bn on Asia growth
  • Tue, 20 Feb 2018 13:36

While well-known on the UK High Street, the banking giant makes most of its money outside of Britain. BBC News - Business

Tax As % Of Gas Price By State
  • Tue, 20 Feb 2018 12:28

Americans are back to purchasing large SUVs and trucks instead of passenger cars, fueled in large part by confidence in the U.S. economy. And with Pre...

Congo is sliding back to bloodshed
  • Tue, 20 Feb 2018 11:32

NO CONFLICT since the 1940s has been bloodier, yet few have been more completely ignored. Estimates of the death toll in Congo between 1998 and 2003 r...

Switzerland has not seen any major Saudi fund flows: Swiss Bankers Association
  • Tue, 20 Feb 2018 11:31

ABU DHABI (Reuters) - Switzerland has not seen any major inward or outward movement of funds from Saudi Arabia, the chairman of the Swiss Bankers Asso...

CBOE Correlation Index Saying To Buy S&P 500
  • Tue, 20 Feb 2018 07:53

I’ve talked about the CBOE implied correlation index a few times before, but it’s very timely to revisit this indicator as the February co...

Meat supplier Russell Hume falls into administration
  • Mon, 19 Feb 2018 23:33

The collapse of Derby-based Russell Hume following an FSA investigation will cost almost 270 jobs. BBC News - Business


News Categories