From the Desk of Ian Culley @IanCulley
Plenty of gold bugs have Krugerrands buried in their backyard or basement – if not secured in a safety deposit box at their local bank.
It’s no wonder gold falls under the “end-of-the-world” category of assets.
Regardless, gold prices can also rise with risk assets.
I raise this point not only as an important reminder but because it’s pivotal to understanding our bullish thesis for precious metals.
It’s a metals story….
When I say Gold 5k, it’s in the same breath as $8 Copper. The structural uptrends for these metals are inseparable in my view, as both stem from a new commodity supercycle.
The overlay chart of Copper and Gold futures tells the story:
Both metals carved out big bases and resolved higher back in the early 2000s. Those base breakouts led to Copper tripling in price as Gold rose almost 500% during the preceding cycle.
I believe a similar base-building process is taking place now. An upside resolution for one likely coincides with a breakout from the other.
That’s why I find the current strength from Copper, Tin, and other metals constructive for their most-precious counterparts.
Check out the relative ratio chart of our equal-weight base metals index versus our broader commodity index:
Base and industrial metals have outperformed since early November of last year. And their relative strength has only picked up the pace in recent weeks.
I can’t imagine commodities breaking down more broadly when Dr. Copper & company continue to print fresh highs. The strength of these industrial metals also speaks to a healthy economic backdrop for risk assets in general. This includes precious metals.
Here’s the Steel ETF $SLX checking all the boxes:
SLX is trading above the prior cycle highs after a healthy retest. It’s also catching higher on absolute and relative terms. In fact, it’s printing fresh multi-year highs versus the broader market. And we have a clear level of former resistance to define our risk.
What’s not to like?
If and when SLX breaks above 68, we like it long toward 107 in the coming 3-6 months. I imagine Copper and Gold are breaking to new all-time highs if SLX is running it back to 107.
That’s my point.
The new structural uptrend for gold and precious metals will not be an isolated event. You have to think of Gold as a risk asset.
Remember Emerging market and cyclical stocks, in general, ripped higher during the last precious metals bull run. I think we see the same play out this time around. I could argue we already are!
Thanks for reading!
As always, please let us know what you think.
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And be sure to download this week’s Precious Metals Report below!
Allstarcharts Team
