There’s been heavy focus on the breakout in gold above the four-year resistance level of $2,100. Many are attributing the move to persistent inflationary pressures driven by a defensive, risk-off tone. This may be partially accurate, but I think there’s more to the story. If you look at the other metals like copper and steel and their associated stocks you’ll see breakouts as well, and in fact, they are showing more strength than gold stocks. We think this tells a different story of markets discounting future demand suggestive of continued global economic growth. Looking at a chart of copper we’ll see a clear breakout above the early 2023 high of $4.35 with the 2022 highs of $5.00 targeted. Fundamentally speaking copper is an industrial metal heavily needed in China and India for infrastructure, transportation, and the green energy buildout. There is evidence of returning demand from an upswing in the Chinese economy following stimulative measures from the Chinese government. Copper is used domestically in various areas of housing and is also viewed as a ‘green metal’ for its use in electric vehicle motors, batteries, wind and solar energy. On the supply side there is a disruption in approximately 2% of the world supply from mine shutdowns in Panama. Drilling down to the mining stocks we’ll look at a weekly Relative Rotation Graph of gold mining stocks in the VanEck Gold Miners ETF (GDX) and copper mining stocks as represented by the Global X Copper Miners ETF (COPX) . These ‘RRG’ charts bring to life the rotation in and out of favor of markets relative to a central benchmark, the S & P 500 in this case. If the market under study is in the right half of the RRG, it’s showing relative outperformance to the benchmark. In the left half and you’re seeing under-performance. The direction or heading of the arrows tells you the rate of change of that out- or under-performance and an indication if it may continue, accelerate, or possibly reverse. This is a very powerful tool. Turning back to the GDX and COPX, since the start of 2024 both names have been heading up and to the right (a positive heading and development), but COPX has been far outpacing the gains in GDX. COPX is in the top right ‘leading’ quadrant as GDX remains back in the ‘Improving’ quadrant. ‘Bull flag’ pattern The way I’m expressing this bullish thesis in copper is through my holdings in Southern Copper Corp (SCCO) in the dividend portfolio at Inside Edge Capital. SCCO is an $88 billion market cap company yielding 2.77% based in Arizona trading 32 times next year’s expected earnings. That’s not exactly cheap, but with the forecasted global demand of copper we think that multiple is justified. We currently hold a 2% allocation in SCCO and upon a break of the highlighted bull flag I plan to add 50% to our position. -Todd Gordon, founder of Inside Edge Capital, LLC DISCLOSURES: (Gordon owns SCCO personally and in his wealth management company Inside Edge Capital Management, LLC) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
