The Bubbling Metals
The metals have been on a tear. The base metals have been rising sharply with several hitting new highs. Whether it's nickel, lead, copper, zinc or aluminum, they've all risen sharply while platinum soared to record highs. And it's not just the metals, the entire gold universe has been hot. Uranium continues to defy gravity as it jumped well above $100, while crude oil sits above the $60 level.
The stock market has been hot too. It's been getting most of the publicity as it keeps hitting record highs. And while the stock market is indeed bullish, over the past eight years the Dow Industrials is still down 58% compared to gold. So the percentage gains have simply been better in gold and the other metals.
It's the same story this year too. The gains in the metals and natural resources have been greater than the gains in the stock market, despite its renewed strength.
As of last week, for instance, uranium had soared 67%. Copper gained 41%, natural gas was up 26%, platinum 19%, gold 10% and silver 7%. In comparison, the Dow Industrials and S&P500 gained 6½%, the Transports were up 11% and the top performing Dow Utilities was up 16%.
POISED TO CONTINUE
These superior gains reflect the ongoing, extraordinary growth in China. China is not slowing down. The economy grew at an 11.1% pace in the first quarter, its trade surplus about doubled and its foreign exchange reserves surged to a record $1.2 trillion.
China is the biggest consumer of copper, nickel, lead, zinc, tin and aluminum. Copper imports alone were up 123% in the first quarter compared to a year ago. And as long as China's growth stays on track, we'll continue to see ongoing rises in commodity prices in the years ahead.
Growing robust demand, together with limited supply is the fundamental reason why commodities will keep rising. The mining industry cannot deliver the supply needed for all this new demand, which means that the mega upmove within the 200 year commodity cycle is in full force.
THIS TIME IS DIFFERENT
This growth has also fueled the emerging stock market surge and countries that produce raw materials and energy are booming. In this vein, the world and the markets are different this time around compared to the 1970s. Today it's much more powerful because it's a global bull market led by demand. In the 1970s, inflation pushed gold, silver and oil up to records. But a demand based rise is always the most powerful.
Let's now take a look at how bullish some of these markets are...
SILVER IS SOLID... PLATINUM & PALLADIUM TOO
Silver has been in a deficit for 15 years now, which is probably why it has been outperforming gold since its rise started in 2003. It's been a good investment and silver's big picture, like gold's, is promising. Chart 1 shows silver's mega uptrending channel since the 1960s. Last year silver reached its first target, the 1983 high, and it's been resisting since then. Once silver overcomes this level at $14.80, silver will have broken out and its next target is at the $22 level.
For now, silver's rise is solid above its rising 65-week moving average at $12.30 (see Chart 2A). Interestingly, the leading indicator (B) is still poised to rise and it looks similar to the movements prior to the surging rise leading up to the May 06 peak.
Silver has been lagging gold since March. The ratio (C) shows that silver could continue to underperform gold in the coming months but it would still be stronger than gold on a major trend basis.
Chart 3 shows platinum's surge. It's up 19% this year alone and it appears to be leading the way for the other precious metals. Palladium is poised to follow as it's rising in a solid mega uptrend too, recently reaching a one year high.
RESOURCES: HOT, HOT
Whether it be record highs in nickel and lead, or big gains in copper and zinc, the base metals are super strong.
Nickel, for instance, is up 53% in 2007 and considering that 75% of the world's nickel is used in stainless steel, a squeeze could keep prices high. In fact, low stockpiles and supply disruptions are ongoing bullish factors for the base metals (see Chart 4).
Chart 5A shows copper's incredible strength. It quickly rebounded from its February lows and it's again approaching its record high posted a year ago at $4.00. Copper prices near $4.00 could put a damper on growth. This means copper could resist once it gets there, especially because the leading indicator (B) is near overbought. But copper is strong above $3.10 and the bull market is solid.
The bottom line is that these markets are among the world's strongest and they're providing an extraordinary opportunity. The fundamentals are solid and so are the technicals. Strong bull markets are in force, not only for gold but for all the metals.
Sure there will be corrections along the way like we're seeing today... that's normal. But stay with these markets for the long-term because they really have everything going for them and there are great profits to be made.