I’m getting mixed reviews regarding sentiment at this year’s PDAC (Prospectors & Developers Association of Canada) as some friends and business associates in attendance rave about a spike in enthusiasm in the gold sector, while others see the underbelly of a mining sector that has been devastated over the past 5 years. As with most things in life, those who choose to seek out the positives and opportunity will find it.
At the world’s largest mining conference, professionals from all over the globe are meeting to discuss ways to make money and create value in these recovering mining markets. In fortuitous fashion, things have turned around in the few weeks leading up to the conference. In fact, many commodities are hitting multi-month highs today.
Rising oil and commodity prices push mining shares higher
The TSX Venture has risen in 12 of the past 14 trading sessions, up over 1.5% today, and has been on fire as commodities from oil to gold enter bull markets.
Copper has recently joined the party, following oil which officially entered a bull market last week. Speculators and money managers alike have turned bullish on the metal, known as Dr. Copper, following reports that stockpiles for the metal have dropped to a 13-month low. Copper recently traded below $2 per pound – but was up to a high of $2.29 Monday.
Copper Supply in question…
image source: http://www.bloomberg.com/news/articles/2016-03-06/copper-bears-turn-into…
While inventories continue to decline, the first net-long holdings in copper were recorded in February since October of last year.
There are still many questions afoot regarding the cause behind rallies in different commodities. On one hand, you have gold rallying because of perceived weakness in global financial markets, negative interest rates and technical strength. While at the same time, copper and oil are up on expectations of stabilizing and improving economies. Zinc, meanwhile, is dropping due to weak global demand. So, while the majority of commodities are moving up, the catalyst, as has been the case in the past 5-7 years, has been a strengthening or weakening U.S. dollar.
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The U.S. dollar has been breaking down in recent sessions as the Canadian, Aussie and other commodity currencies rally with the price of oil.
U.S. Dollar Index – 5 Day Chart
The hard reality is this: with global growth still projected to be anemic in coming years and supply for most commodities still near record highs, a declining U.S. dollar is paramount to a sustained rally in the commodity space. Luckily for mining investors, weak U.S. growth could see the Fed postpone future rate hikes, leading to a steady decline in the greenback. This would be bullish for gold, while any decision by OPEC to freeze output would continue to send oil higher. In the meantime, junior resource investors will evaluate the brave companies still fighting to survive and thrive in 2016 at this year’s PDAC.
This article represents solely the opinions of Alexander Smith. Alexander Smith is not an investment advisor and any reference to specific securities in the list referred to in the article does not constitute a recommendation thereof. Readers are encouraged to consult their investment advisors prior to making any investment decisions. The information in this article is of an impersonal nature and should not be construed as individualized advice or investment recommendations.
