Copper Stocks Are Set to Surge This Year
“We know a shortage is coming. But we can’t make money this quarter … so we are underweight miners.”
His fellow investment bankers nodded in agreement on stage.
And they were right. The metal in discussion, copper, slipped 7% in the following quarter.
The four bankers were holding a panel on investing in the mining sector at the Prospectors & Developers Association of Canada (PDAC) in Toronto last March.
Even with a deep knowledge of commodities and mining, these men were still beholden to shareholders. That meant delivering returns every quarter.
When you live life looking through a three-month window, you become a short-term thinker.
But we can do something these investment bankers can’t do: think long term.
Copper is set to surge in the years ahead.
The Long-Term Trend in Copper is Bullish
Copper is used in every home, appliance, cell phone and car — it’s key to the electrified lives we enjoy.
But the price of copper is controlled by short-term thinking. With the threat of a global trade war and economic slowdown, copper prices linger lower.
But there is a massive shortage coming. And there is no questioning that.
There are two reasons for this shortage:
- In the bear market in metals from 2011 to 2016, miners shied away from building new mines. Copper fell from a high of $4.60 to $2.00 per pound. That was enough to scare most major miners away from heavy investments into new mines.
- A copper mine can take a decade to build out. That means increased demand won’t find higher supplies for years.
But the coming electric vehicle (EV) revolution will drive this spike in demand.
That’s going to be a huge source of metal demand. The International Energy Agency predicts that the EV market will grow 2,100% by 2030. We will need an extra 2.65 billion metric tons of copper per year.
That’s about 15% of the world’s current production.
Without copper mines in the pipeline now, this shortage of copper is inevitable. The world won’t run out of copper. But prices will soar.
We could see the price of copper rally 70% to $4.60 like it did in 2011.
The Start of an Uptrend
Recently, copper prices are seeing relief from the bearish sentiment.
The Federal Reserve put interest rates on pause back in December. Now it’s hinting at cutting rates in July.
That means cheaper money, which fuels growth. Since copper is a building block for modern life, we will see increased demand.
Cutting interest rates will also weaken the dollar. Since metals are traded with the U.S. dollar on a global market, that means copper will be cheaper for other nations. Again, we will see increased demand from this.
The only thing standing in the way of a sustained rally in copper is a global economic slowdown.
To gain exposure to the rally in copper, consider the Global X Copper Miners ETF (NYSE: COPX).
This exchange-traded fund (ETF) holds a basket of copper miners. Its top holdings include Canadian, Chinese, Australian and Mexican copper miners.
Readers of Real Wealth Strategist will soon be getting our exclusive special report on the top copper miner to profit from the rally in copper.
Internal Analyst, Banyan Hill Publishing
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