Gold Makes New Record Highs This Week And Other Metals Are Primed To Go Higher - It Is Time For Investors To Embrace Mining Stocks
Without mining nothing get made or runs. Yet, the miners are underloved in the global economy which will change as metals prices go much higher and drive metals stocks to new highs.
Gold continues performing like a rock star making a new weekly high yesterday after a strong rally since the Fed cut rates at their recent meeting. At the press conference during the Fed meeting, Powell went with the Goldilocks story by saying despite them cutting rates by a half-point the jobs market and economy are just right.
Gold certainly didn’t buy it and is signalling that there is trouble ahead with the chances of a soft landing decreasing while the odds of a hard landing are increasing. The last time they started a rate cutting cycle with a half-point cut was just before the 2008 GFC. They may pitch things that are tickety-boo, but their actions are telling a different story.
If I can see that the jobs market is slowing much more than they would like, they can as well. And they clearly know that if the jobs market is in trouble, so is the economy. Which is why they went with a half-point cut.
As I had reported on for months, the full-time jobs are in decline and part-time jobs are going up.
Which means that workers are losing higher paying full-time jobs with benefits to take on one or more lower paying part-time jobs to make less money. The alarm bells went off at the Fed when the BLS revised jobs down by over 800k just before the Jackson Hole meeting and then for a couple more months after that as well.
But on cue, the talking heads in business media keep trying to sell the Goldilocks scenario. The trends in the jobs market and economy will likely force the Fed into doing a few half-point cuts before switching to a series of quarter-point cuts.
Gold is flashing the warning signal that the Fed is heading back toward the Free Money Era with interest rates and increasing their balance sheet. The US dollar (USD) is on very shaky ground and the USD index started a major correction prior to the Fed cutting, and is ready for another drop. It is trading like it is looking for any excuse to correct. When the index drops below 100, it will be on a slippery slope to 90 and much lower.
Some argue that the troubles ahead could cause a steep correction in the stock market and a liquidity crisis. I can understand why they think that because valuations are stretched with the forward multiple on the P/E ratio near record highs. The only reason I don’t agree with a severe correction is because the Fed never forgets their unspoken third mandate which is they have to protect Wall Street.
The jobs market and economy in trouble while Wall Street stocks are priced for perfection, are the precise reasons why I say with confidence that the Fed is heading back toward the Free Money Era. This is in no way a Goldilocks economy, I hope more investors protect themselves and don’t buy into the nonsense the Fed is trying to sell.
Making matters even more powerful for gold is the next president is going to be a massive spender. They are going to make the Death Spiral of Debt even worse. Which is one of the key drivers for the gold bull market. The growth in the debt and cost of servicing the debt has the Death Spiral of Debt on autopilot.
This isn’t an American only problem, the global debt is nearly $320 trillion and is only backed up by around a percent or so with gold. That is going to change, the central bankers in the BRICS nations realize it, which is why they are putting themselves on the Gold Standard and the west will be forced to do the same. We are literally in a perfect storm for gold to go multiples higher from its current price.
Now that the two biggest economies, China and America, are in stimulus modes, they are making a perfect storm for copper.
Much like gold reaching peak production, copper is in a similar situation. The supply chains of gold and copper for the past couple decades have been allowed to deteriorate. Investors have been pouring money into everything but the supply chains of gold, copper and other critical metals needed to make all the products we enjoy in the modern world.
Copper supply is already strained due to demand from technology, alternative energy, aging power grids, new power grids in developing countries, electric vehicles and lately another energy drain from AI.
It has gotten so bad that the world needed to find a new Escondida every year for several years in the past and into the future. But that hasn’t happened and it won’t. Now the price of copper has to go much higher to incentivize building every copper development project in the pipeline.
There aren’t enough copper mines in the development pipeline to meet the demand, they are expensive to build and take years to permit after they are proven to be economically viable. Much higher copper prices will help, but it needs to go much higher than almost everybody expects.
Even if every copper development project turned into a mine, it still won’t be enough. Help on that front is not on the way anytime soon because for well over a decade the discoveries of copper mines has been in serious decline. There just isn’t enough money being pumped into exploration to increase the discoveries in the amount needed to advance into the development stages.
Earlier this year, copper had a run to new record highs, but that is not nearly enough to drive adequate investment into exploration, and new mine development. Some analysts are predicting much higher copper prices, but they are woefully underestimating how high it has to go to help make a difference to the copper supply chain.
The copper supply chain needs a much higher price, not $5.00 per pound, it needs $10.00 to $15.00 per pound.
The modern world is great at innovating, but not enough consumers and builders of products seem to realize how crucial metals, especially copper, are to make the products and have them work. Every consumer and manufacturer of the products they buy needs to hug their copper miners and thank them for putting up with under investment and too low of a copper price for so long.
The copper supply chain was already under pressure, but then out of the blue artificial intelligence has emerged and it is a huge energy hog. As it grows, it will need massive amounts of new energy and copper to make it work.
Microsoft is making a big push into AI, as they realize how badly they need energy and therefore are making plans to restart the Three Mile Island nuclear plant. One of the great things that will come out of AI is the world will have to get serious about nuclear energy. It is the only answer to providing the energy that the modern world needs if it wants clean energy at base load levels.
It will also force the US and other developed countries to modernize their ancient power grids. Which will need a massive amount of copper. The future looks very bright for copper, uranium, traditional nuclear reactors and small modularized nuclear reactor makers.
Another metal with a fabulous future is silver. It is a monetary metal and also is crucial for solar energy. There are plenty of places in the world where solar energy is viable because the cost of solar panels have come down so much.
The supply of physical silver is in a deficit and based on the pipeline of supply, the deficit will grow more acute. Silver is another metal that is primed to blast off.
The last great metals bull market was from 2001 to 2011, but that is nothing compared to the one that is just getting started. The prices of gold, silver, copper, uranium and other metals are going a lot higher. Demand is growing but the chronic under investment in the supply chains is going to drive the prices of metals much higher than many even consider remotely possible.
The real torque for investors is in the miners, the mine developers and explorers. Most are trading at depressed prices and are only starting to slightly price in the current prices and not even considering the prices of the metals that are coming to a theatre near you soon.
The miners, mine developers and explorers have been unloved for way too long. It is well beyond time that they take their rightful place in the global economy. Nothing is made or works without mining and it is time for consumers, politicians, manufacturers and investors to wake up to that reality.
All the best,
Allan Barry Laboucan
