Gold and Oil get significantly more press coverage than the rest of the commodity stable. Unfairly so in our opinion. The former is the safehaven of choice for most, scarcity ensuring its value holds up well during times of economic and market stress and investor uncertainty. It is also sensitive to interest rate policy with higher rates increasing the cost of holding it as a zero-yielding asset. Higher US interest rates increase demand for the US Dollar making dollar-denominated commodities such as the yellow metal more expensive for those using other currencies. Lower rates make it cheaper. Its 2016 recovery has also revived interest in it as a tradeable asset (absent inflation meant it fell out of favour as a traditional hedge, low rates and ineffective stimulus from central banks also failing miserably) following a protracted sell-off from $1800 that began four years ago. We currently trade at $1340, having bounced 30% since December. Interest is understandable.

Oil is now followed forensically on account of its tight links to global growth and as a fuel for industry, plastics etc. Even more so since the sharp sell-off from over $100/barrel two years ago to trade below $30 in January, before bouncing to $50 in June. All because of the global economic slowdown and industry oversupply via innovation such as US shale/fracking. A gradual shift towards alternative energy sources and long lead times means the industry was still bringing more and more production on-line in the face of waning demand. The perfect storm. It also means too much is still being pumped out of the ground. Oil-reliant nations now can’t afford to stop selling as much as possible at prices less than half what they were. OPEC et al. are trying to cobble together a production freeze agreement but the chances are slim, having failed before, and headwinds a plenty. The black stuff has a tendency to both help and hinder the commodity space, so monitoring it is indeed useful.

However, there are plenty of other commodities out there that can be both traded themselves, and whose prices offer early signals about sentiment on global growth and risk appetite for Mining shares. Copper for example has long been seen as a proxy for China growth. Which markets have turned a little more positive on lately thanks to some reassuring data. Now the world’s #2 economy may well be in transition from manufacturer/exporter to services/importer, but demand for the red metal is still a decent smoke signal for growth given its extensive use in all those smart gadgets electronics we love. And we’ve been watching an uptrend for a while now. Iron ore is another one, used to make the steel we need almost everywhere. However, we have moved on from watching just these two, to considering the likes of Aluminium, Zinc and Nickel too. Not so much individually, rather as a general confirmation of demand for industrial metals and the sector trend as a whole.

My point here is that the Miners are topping the UK 100 league table this week with gains of 10%; Anglo American (AAL; +12%), Glencore (GLEN; +15%), Fresnillo (FRES +10.5%), BHP Billiton (BLT +10.5%), Rio Tinto (RIO; +9.7%) and Randgold Resources (RRS; +8%). Precious metals miners RRS and FRES did well thanks to a weaker USD making Gold and Silver cheaper. Investors are clearly uncertain about the ability of the Fed to deliver a US rate hike in December and, as we explained earlier, lower rates for longer make precious metals cheaper to buy and hold. Uncertainty also fuels demand.

Base/industrial metal miners have outperformed, however, not simply due to a weaker USD making them cheaper, although that surely helped. Their rallies began earlier, in some cases last week, offering great opportunities to run with a largely ignored trend this week, additional assistance coming in the form of a US Fed denting the dollar via updated monetary policy outlook on Wednesday evening. Take a look at the individual charts of the aforementioned Copper, Aluminium, Zinc, Nickel and Iron Ore and you will see that following recent downturns they were already showing signs of finding support and/or already turning days before. Handily welcome early signals for those watching the all-important UK Index Miners.

We keep an eye on all of this for our clients. Each and every day. It’s our job to point out interesting moves before they hit the media, giving clients a chance to react and, most importantly, make profits. Why not treat yourself and get access to our research today to make sure you are ahead of the curve next week, first in-line to make profits, not back of the queue.

Mike van Dulken, Head of Research, 23 Sept