Miners tend to outperform metals in this kind of macro environment
April 12, 2024
Key Observations:
The Dec-24 LME copper price has advanced by 10% ytd through last night's close. The Global X Copper Miners ETF (COPX) price has advanced by 23% ytd over the same interval. That relative performance is normal in inflationary macro environments like the current one: demand-led and clearing against high costs. Share prices tend to beat metal prices by 2X to 3X on the effects of operating leverage. Lower-cost miners find that higher received prices pass to the bottom line.
On CMX, the Dec-24 gold price and Dec-24 silver price have advanced by 14% and 21% from ytd lows, respectively. This relative performance is also normal for this kind of macro environment. When precious metals are working, silver tends to beat gold by a 1.5X price ratio or more.
It is also normal for juniors to outperform majors. This too is happening now. The VanEck Junior Gold Miners ETF (GDXJ) has advanced by 37% since we spotlighted it at the lows in Feb-24 in 1x1 meetings in New York, Greenwich, and London. Its sibling (GDX) is up a still outstanding 33% over the same period. Notice in the chart how much NEM and ABX have struggled relative to peers.
The Shanghai Gold Exchange Au T+D Gold price settled above the equivalent of US$2400 per oz on Apr 9 and 10. Our 12M forward target for both GC1 and LBMA spot is $2650 per oz.
Source: Bloomberg, Blacklight Research. Note: for more detailed analysis and investment strategy, see: Gold likely works whether inflation slides, ranges, or surges (15-Mar-2023), We take stock of our commodity trading ideas (1-Jun-2023), A silver lining for the copper/gold ratio (26-Nov-2023), Silver is testing a breakout (28-Nov-2023), Incremental alpha in a Silver Lining portfolio (30-Nov-2023), Up, up, and away (4-Dec-2023), Macro hedges migrate from sugar to gold (15-Dec-2023), and The Tides of Démarche: Gold's Metallic Rebellion Arrives (15-Mar-2024).
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