Volatility presents trading opportunities in individual metals, as global growth continues

The froth is coming off the top of markets, but how fundamental are these moves?

The inverse relationship between the dollar and gold continues as strong as ever

It’s a measure of the financial climate we’re living in that one market commentator referred to the 40% rise in the bitcoin price on Thursday as “a dead cat bounce”.

If a 40% rise constitutes a dead cat bounce, what can we say about markets that are still alive?

At the very least the answer is that they finally proving it.

During 2017 the Vix volatility index was perpetually becalmed.

But it is becalmed no more.

During the first six weeks of 2018 the Dow has soared to new records and then crashed back, the FTSE has done the same, the dollar has progressively weakened and then staged an impressive comeback, and within the space of a week or so, gold has pressed ahead towards US$1,400 an ounce, only to be driven back to just over US$1,300.

It may be flash-in-the-pan as far as long-term trends are concerned, but in the near-term the idea that volatility has gone away has been well and truly put to bed.

Overall, analysts are not overly concerned, though. Most have long been arguing that a correction in equities markets is overdue and were at least allowed the satisfaction of being proved right.

More to the point though, the argument was that equities have been overvalued, not that the investment case per se is drying up.

On the contrary, it’s actually a perfect storm for analysts. Not only has their cautious pessimism been proved right, but it looks as though their jobs will nevertheless be secure in the medium-to-long term.

Global growth remains on track, the Chinese trade surplus continues to grow, the US economy is continuing strong, and there is an appetite amongst central bankers for rate rises that should let the air out of any bubble before it gets too inflated.

Yes, specialists get less respect in the Trump era than they used to, but at least what they are saying bodes well for all market participants, except global economic bears, if there even are any of those.

There are bears in certain specific areas, to be sure. This week, against the backdrop of a 3% fall in the copper price, Julius Baer warned that for certain commodities relying on a generic global growth story isn’t going to be enough.

“Instead of just focusing on the global growth outlook, which is positive, you should keep an eye on what we call China’s old economy – the property market, the infrastructure segment,” said Julius Baer. “That’s where we expect a slowdown sometime this year”.

But copper wasn’t the only thing that was down 3% against the dollar. The pound was down by roughly that amount too, and other commodities dropped too. That suggests that for now at least, investors are trading in the context of the strength or otherwise of the dollar, rather than in the context of a longer-term outlook for global growth. That’s locked in, no matter what the current account and trade surplus data from China says on a month-by-month basis.

 More significant in the end may be the technological transformation that continues across the world’s vehicle and battery markets. Copper bears may talk of slowing construction and household starts in China. But the bulls talk of all the extra wiring that will go into electric cars.

Big miners like Glencore (LON:GLEN), Rio Tinto (LON:RIO) and BHP Billiton (LON:BLT) have plenty of exposure to copper and could reap significant benefits. This week, results from Rio Tinto highlighted just how well the miners are already doing in the current market.

But the good times could be set to trickle down. As Alan Stephens of Coro Mining (TSE:COP) told Proactive last week, the world needs to find a new Escondida every year for copper supply just to stand still. As an experienced minefinder, he’s well placed to benefit. But there are others around too. Asiamet (LON:ARS) is working up its Indonesian ground, Cradle Arc (LON:CRA) has its Mowana mine in Botswana. Excelsior Mining (TSE:MIN) is uniquely positioned in low-cost in-situ leaching in the US. And Kincora (CVE:KCC) has a commanding position in Mongolia.

All of these companies are well set to represent the next generation of copper miners in the market. And could well represent the next successful employment of investment dollars. One thing seems certain though. Whatever happens to the bitcoin price, the technology that brings you the information about it will be built around copper wiring.

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