The best bet in the base metals rally

Silver is an industrial and a precious metal, so it should profit from both good and bad news © iStockphoto

(Image credit: Silver bars © Getty Images/iStockphoto)

The prices of key industrial metals have been enjoying a “spectacular rally”, says Buttonwood in The Economist. Copper has jumped by about 25% since the start of April, while iron ore has delivered 12% gains for the year to date.

Commodity bulls have China to thank for this rapid recovery, says Buttonwood. Steel blast furnaces were running at 92% capacity in the first week of June, which is above normal levels. For all the talk of the Middle Kingdom’s shift to a consumer economy, the authorities seem happy to use the old method of stoking a construction boom when a round of stimulus is needed.

Iron ore has emerged in recent years as the world’s “second most important commodity behind oil”, say Julien Hall And Fiona Boal in the Financial Times. The S&P GSCI Iron Ore index has more than tripled over the last seven years while many other metals have stalled. Now more liquid futures markets are making the steel ingredient easier than ever to trade. That makes iron ore an attractive “proxy” investment for those wishing to bet on the Chinese manufacturing sector without buying in directly. The current metals rally is also being driven by supply constraints, says Myra Saefong in Barron’s. Mine closures in pandemic-hit Latin America mean less iron ore and copper reaching global markets. Yet copper prices may struggle now amid a highly uncertain few months ahead for the global economy, says Johann Wiebe of Refinitiv.

MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

The best bet may well be silver, says Taki Tsaklanos of InvestingHaven.com. As both an industrial and a precious metal it stands to gain even if another virus wave triggers renewed lockdowns. That is likely to mean even more emergency money printing, which is a boon for precious metals. Currently trading around $17.80/oz, he expects silver to approach $21/oz before the end of the year.

Explore More

Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.