The way I work is I try and think about the world we live in, and what are the most likely long term outcomes. As of today, I still think a pro-labour world which drives higher inflation, and an eventually dearth of capital. My favourite way to play this has been GLD/TLT. This has been a great trade - but to paraphrase Monty Python, is seems to be having a bit of a lie down after a long squawk.
I don’t really read much other financial research. I do read Chris Wood, and I also quite like IMF reports. But one person I do pay attention to is Jeff deGraaf from RenMac. Why I like Jeff is that he only looks at charts, and then just publishes the most interesting ones. This chart showing an inflection in industrial metals versus precious metals.
He follows it up with this chart on general industrial metals breaking out..
And then this one on aluminium in particular. Aluminium in particular is related to war in the middle east as this has reduced supply.
I have been surprised by the relative weakness in gold since the war in Iran started, so maybe switching gold to industrial metals makes more sense? I do remember that copper/gold ratio and the US 10 year yield were highly correlated for a long time - but that this relationship broke down in recent years.
Looking at the above chart, you could argue gold is too expensive relative to copper, given the move in bond yields. For me, it just says that gold became a much more attractive reserve asset from 2022, when Russian foreign reserves were frozen. So gold has been much better than copper in recent years. Should I switch? My read of markets is that Central Banks remain far too dovish. And politically, cost of living hurts politicians far more than a bullish stock market helps them. So at some point, central banks will be forced by markets to raise rates (the long end has a huge sell off), or central banks raise short term rates to a high level to prove their inflation fighting skills. See circled part below.
I can not help but think, in either a long bond sell off, or a central bank induced slowdown, gold will outperform copper. I think what I am saying, is that in a free market world, treasury yields and copper/gold would indeed move based on economic activity. In this new pro-labour world of tariffs, and industrial policy, yields reflects lack of faith in central banks and governments, and gold also reflects lack of faith in central banks and governments. How will copper do with 10% on 30 year treasury? I don’t know. Maybe okay? But I think gold could keep going higher.
I guess what I am saying, is that backward looking models make industrial metals look attractive. But political analysis, which I think is more important these days still favours gold.
