Not all metals are created equal and there is often a wide disparity between the performance of base metals and precious metals. After all, they are used for very different reasons. However, last week virtually every metal, ranging from copper to gold, was bid higher; base metals in particular rallied impressively with copper gaining 5.6% and nickel surging ~8%.
After a slow start to the month of July the commodity sector as a whole has turned July into the best month of 2017 so far:
FCX/Copper/WTI Crude Oil/CAT/ETG.TO/MIN.TO since June 29th, 2017
We have seen large gains in producers such as Freeport-McMoRan and Newmont Mining as well as juniors like Entree Gold and Excelsior Mining. Even a ~$68 billion market cap company like Caterpillar (NYSE:CAT) staged a 7% rally last week after reporting earnings which beat expectations while raising its full year outlook.
The best part for metals bulls is that many investors aren't convinced that the rally is for real; sentiment is largely in neutral territory and Commitments of Traders data for copper, gold, and silver futures remains well below historic bullish extreme levels:
Copper (Weekly - CoTs)
Gold (Weekly - CoTs)
A major tailwind for the metals space has been a weakening US dollar, however, last week's rally appears to have a lot to do with Chinese demand reemerging and global growth expectations perking up. In many ways a weakening US dollar and emerging markets growth go hand in hand due to the 'carry trade' - if global investors know that the Fed has their back via a gradual weakening of the US dollar then risk is ON in a big way across emerging and frontier markets. Last week's price action is a strong indication that this may be the case.
Oh, I almost forgot. Fund managers are still underweight commodities even after the recent run up, far from the 25%+ overweight positioning we have seen at previous peaks for the sector:
Source: BAML Fund Manager Survey
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