Chart of the Week - Base Metal Rising
While all eyes are on surging gold prices, industrial metals have been quietly achieving… $iShares S&P GSCI Commodity-Indexed Trust(GSG)$ $S&P 500(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$
A few months ago I outlined how industrial metals were at the center of several key macro/thematic cross currents, and my view on this if anything has become stronger.
This chart is going to be the first to know about which “macro edge risks” play out this year: recession and deflation if it breaks support vs reacceleration and resurgence if it breaks higher.
Not only is there increasing evidence of reacceleration in the data (leading indicators turning up, manufacturing PMIs rebounding, global trade volumes recovering from recessionary conditions last year), but the rise in industrial metals is basically another piece of evidence/confirmation of this.
Meanwhile China is an important wildcard in this space because currently they are in the middle of their worst property market downturn in recent history — that is clearly negative for commodities. However, the greater the economic pain: the greater the chances of stimulus, and in February they cut the 5-year policy rate -25bps and the RRR -50bps, this may be a sign of further stimulus to come.
Finally, there’s the thematic aspect — we are currently in the middle of an intriguing multi-pronged capex boom. The clean energy transition, reshoring, EVs, infrastructure investment, war, space, AI, etc …and even expanding production capacity in commodities themselves! There is a lot going on, and I don’t think it’s wrong to say that this may be a decade of hardware (manufacturing, building, innovation) after a decade of software (social media, internet, SaaS).
This all lines up with the generally bullish outlook on commodities, but also has meaningful macro implications (reacceleration + resurgence will mean a vastly different regime from that of the past 18-months: very meaningful for Asset Allocation). So, keep an eye on this chart!
Key point: Base metal prices are breaking higher as the macro shifts.
https://entrylevel.topdowncharts.com/p/chart-of-the-week-base-metal-rising
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