Dr. Copper Gives the Economy a Clean Bill of Health

“Dr. Copper,” so named for the metal’s ubiquitous use in many different applications, has been ripping higher since its 52-week low in March, thanks to a number of factors including promising economic data. Copper rose 12.24% in November, its best month in four years. Today it was trading as high as $3.52 per pound, or $7,679 per ton, its highest level since March 2013.

The rally is due in large part to higher demand from manufacturers in the U.S., China and eurozone. For the month of November, the IHS U.S. Manufacturing PMI hit 56.7, up significantly from 53.4 in October. The month-to-month increase was the sharpest since September 2014, according to IHS Markit.

China, the world’s largest consumer of the red metal, is forecast to be the only major economy to demonstrate growth this year, and earlier this week, the Organization for Economic Cooperation and Development (OECD) said it believes China will account for a third of all economic growth seen around the world in 2021.

Chinese factories signaled their strongest improvement in over a decade. The Caixin China General Manufacturing PMI posted 54.9 in November as output and new orders surged to 10-year highs. European factories also continued to expand, though at a slightly slower pace than the previous month.

Looking at manufacturers on a global scale, the data is just as strong. The JPMorgan Global Manufacturing PMI climbed from 53.0 in October to 53.7 in November, a 33-month high. According to JPMorgan economists, this marks the fastest pace since January 2018.

The Start of Another China-Driven Supercycle?

In light of the positive manufacturing uptrend, some economists and market experts see the start of a new copper-price supercycle driven largely by China. The Asian country currently consumes about half of all copper produced worldwide, and this activity could increase as the nation undergoes a vast energy shift to renewables such as wind and solar.

This week, a senior executive at BHP, one of the world’s top copper producers, said that copper output would need to double over the next 30 years to meet surging demand for green renewable energy.

Reflecting on the copper bull run, which has lifted the metal’s price some 72% since the March low, one money manager believes this rally could be one for the history books. Says Luke Sadrian, chief investment officer at Commodities World Capital, copper is “looking like it did in ’04 and ’05, and the world didn’t get the memo.”

Due to massive imports from China, copper prices increased more than 280% between the beginning of 2004 until they peaked in May 2006.

Today’s China imports of the red metal are much greater than they were then. In July of this year, the country bought a record 762,211 tonnes of unwrought copper, which is close to four times greater than the average monthly import amounts between 2004 and 2007.

In a note to clients this week, Goldman Sachs analysts said they believe the current price strength “is not an irrational aberration” but rather “the first leg of a structural bull market in copper.” By the first half of 2022, the Wall Street bank says that it’s “highly probable” copper could test its previous record high of nearly $10,150 per ton, set in February 2011.

Copper Miners on Fire

As a result, shares of copper producers and explorers have soared. For the six months through December 3, the Solactive Global Copper Miners Index was up more than 66%, outpacing the returns for other metal miner groups. Performance for the period was driven by companies such as Capstone Mining (up 174.04%), which operates in the U.S. and Mexico; Arizona-based Freeport-McMoRan (140.68%); and Ivanhoe Mines (93.93%), which is currently developing three properties in Southern Africa.  

Judy Shelton proponent of the gold standard expected to be confirmed to the Federal Reserve Board

Our favorite copper name continues to be Ivanhoe. As I reported in September, the Vancouver-based company is set to begin production at its tier-one Kamoa-Kakula Copper Project in the Democratic Republic of the Congo (DRC), believed to be the world’s second-largest copper deposit.

“Kakula is on track to begin production in under one year from now, which, considering we’ve been working in Africa for 27 years now, feels like tomorrow morning,” commented Robert Friedland, Ivanhoe’s billionaire founder and co-chairman.

Since Robert visited office in January 2018, shares of Ivanhoe have increased more than 40%. I last wrote about Ivanhoe in mid-September, and since then, the stock has returned 9.7%.

This week, Ivanhoe gave a virtual site tour of its 64%-owned Platreef Project in South Africa, which will mine for palladium, platinum, rhodium, nickel, copper and gold. The company believes Platreef is set to become on the world’s largest producing mines of platinum-group metals, with potential annual output of more than 600,000 ounces of palladium, platinum, rhodium and gold.

You can watch the tour for yourself by clicking here.

HIVE Blockchain: Record Quarterly Revenue and Cash Flow

On Monday, HIVE Blockchain Technologies reported financial results for the second quarter of fiscal 2021. Thanks to all who attended, and thanks also to everyone who helped make this past year such a success. I am proud to serve as the Interim Executive Chairman and play a key role in daily operations.

U.S. Global Investors took HIVE public in September 2017 because we wanted to give investors an opportunity to participate in cryptocurrency mining, similar to how an investor can buy Ivanhoe to get exposure to copper. (As a reminder, U.S. Global owns 10 million shares of HIVE and our stock often moves in line.)

What makes HIVE truly special is that all of the digital coins we produce are virgin, meaning they were not previously owned. That way, we don’t have to worry about anti-money laundering (AML) laws.

For the quarter ended September 30, HIVE generated a record $9.2 million in net income, compared to a loss of $11.5 million in the same period a year earlier. Adjusted EDITDA, which measures operating cash flow, was $10.6 million, a significant increase from a loss of $4.6 million last year.

HIVE trades in Canada (TSXV:HIVE), the U.S. (OTC:HVBTF) and Germany (FRA:HBF), and so far this year, trading volume has smashed last year’s numbers. As of Friday morning, more than 1.8 billion shares of HIVE had been traded around the world. That’s three times more than the 626 million shares that were traded in 2019.  

Year-to-date, HIVE has smoked its crypto-mining peers. Through December 4, shares were up an incredible 1,216%, trading with the price of Ethereum about 90% of the time. Please keep in mind that the crypto industry is still in its early stages, so investing in coins and miners remains very volatile.

Mr. Gold and Mr. Wonderful Return

Many of you listened to my live conversation with Kevin O’Leary, “Mr. Wonderful” himself, chairman of O’Shares ETFs back in October.

A second discussion has been scheduled to ponder what’s ahead in 2021 and we’re now taking registrations. Among the topics Kevin and I will be covering are potential policies under President-elect Joe Biden, the post-COVID world and the implications on your portfolio.

Join us on Thursday, December 10, at 11:00 AM Eastern. Register for FREE by clicking here!

 

Gold Market

This week spot gold closed at $1,838.86, up $51.07 per ounce, or 2.86 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week higher/lower by 2.89 percent. The S&P/TSX Venture Index came in up 2.66 percent. The U.S. Trade-Weighted Dollar fell 1.04 percent.

Date Event Survey Actual Prior
Nov-30 Germany CPI YoY -0.2% -0.3% -0.2%
Nov-30 Caixin China PMI Mfg 53.5 54.9 53.6
Dec-1 Eurozone CPI Core YoY 0.2% 0.2% 0.2%
Dec-1 ISM Manufacturing 58.0 57.5 59.3
Dec-2 ADP Employment Claims 440k 307k 404k
Dec-3 Initial Jobless Claims 775k 712k 787k
Dec-4 Change in Nonfarm Payrolls 460k 245k 610k
Dec-4 Durable Goods Orders 1.3% 1.3% 1.3%
Dec-8 Germany ZEW Survey Expectations 46.0 39.0
Dec-8 Germany ZEW Survey Current Situation -66.0 -64.0
Dec-10 ECB Main Refinancing Rate 0.000% 0.000%
Dec-10 Initial Jobless Claims 720k 712k
Dec-10 CPI YoY 1.1% 1.2%
Dec-11 Germany CPI YoY -0.3%
Dec-11 PPI Final Demand YoY 0.7% 0.5%

Strengths

  • The best performing precious metal for the week was platinum, up 9.59 percent on supply shortfalls and expectations that the metal will have a roll in fuel cell technologies. Platinum extended its rally to hit a four-year high of $1,048.34 an ounce. The precious metal gained nearly 14% in November, its best month since 2008 and wiping out its loss for the year. The rally is in large part due to a projected record production deficit.
  • The Perth Mint reported November gold sales rose due to a significant increase in demand from international wholesale customers, particularly in Germany. Gold coin and minted bar sales totaled 84,158 ounces, the highest since April and up from 38,367 in October.
  • Gold had its first weekly advance in a month after rising back above $1,800 on Tuesday and as prices steadied on Friday. Bullion rose to a one-week high on Thursday as investors weighed prospects for a vaccine and the murky outlook for U.S. stimulus negotiations, reports Bloomberg.

Weaknesses

  • The worst performing precious metal for the week was palladium, down 3.13%, perhaps on some traders rotating out of palladium which seem to have lost its momentum relative to platinum. Citigroup cut its forecast for net inflows into gold ETFs to just 800 tons, 75 tons less that previously predicted, reports Bloomberg. The bank expects inflows to be 50% lower in 2020 and sees support for gold in the short term at $1,700 an ounce.
  • Gold imports by India fell in November despite hopes for stronger buying during the festival of lights. Overseas purchases dropped 41% last month from a year earlier to 33.1 tons. Purchases were up from the 29 tons in October.
  • The Industrial and Commercial Bank of China suspended account opening by individuals for gold and silver trading due to rising market risks and uncertainties amid precious metal price volatility. China Construction Bank did the same two days later. China is the world’s largest consumer of gold.

Opportunities

  • The worst performing precious metal for the week was palladium, down 3.13%, perhaps on some traders rotating out of palladium which seem to have lost its momentum relative to platinum. Citigroup cut its forecast for net inflows into gold ETFs to just 800 tons, 75 tons less that previously predicted, reports Bloomberg. The bank expects inflows to be 50% lower in 2020 and sees support for gold in the short term at $1,700 an ounce.
  • Gold imports by India fell in November despite hopes for stronger buying during the festival of lights. Overseas purchases dropped 41% last month from a year earlier to 33.1 tons. Purchases were up from the 29 tons in October.
  • The Industrial and Commercial Bank of China suspended account opening by individuals for gold and silver trading due to rising market risks and uncertainties amid precious metal price volatility. China Construction Bank did the same two days later. China is the world’s largest consumer of gold.

Threats

  • As bitcoin rises to new all-time highs and gold loses steam, the debate between the two assets intensifies. More and more investors are calling for bitcoin as the new haven asset to replace gold. “Gold was really the safe asset of the past world and baby boomer generation. Now it’s being replaced by automated assets like bitcoin,” said Jean-Marc Bonnefous, a former commodities hedge fund manager, in a Bloomberg interview. Gold-backed funds have dropped 93 tons of the metal since November 6, while the Grayscale Bitcoin Trust has doubled in dollar terms since the start of August.
  • Gold had its biggest monthly slide in four years, down more than 5% in November. The metal has lost steam as a COVID-19 vaccine nears global approval, which is sparking hopes of an economic recovery. Bullion tends to perform well during periods of economic and geopolitical uncertainty. The question is whether investors will keep buying gold even when the economic situation improves.
  • Just like gold, silver has lost love for investors. Silver ETFs had their biggest weekly outflow since 2011 in the week ended November 27. Although silver has more industrial applications than gold, it typically tracks the price of its relative, writes Bloomberg’s Eddie Spence.

 

Index Summary

  • The major market indices finished up this week. The Dow Jones Industrial Average gained 1.03%. The S&P 500 Stock Index rose 1.67%, while the Nasdaq Composite climbed 2.12%. The Russell 2000 small capitalization index gained 2.00% this week.
  • The Hang Seng Composite lost 0.69% this week; while Taiwan was up 1.91% and the KOSPI rose 3.72%.
  • The 10-year Treasury bond yield rose 13 basis points to 0.97%.
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You can read the remainder of this article at http://www.usfunds.com/investor-library/investor-alert/dr-copper-gives-the-economy-a-clean-bill-of-health/

December 4, 2020

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors