Precious Metals Will Ride A New Commodity Supercycle Higher

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Think back about a week or so to August 5. Gold was trading decisively above $2,000 an ounce, and silver was trading at a seven-year high above $27 an ounce. Precious metals stocks were flying once again — just like I’d been predicting for the past few months.

Gold nuggets on top of American paper money.
Source: Shutterstock

And so I recommended members of my paid services take a few chips off the table in the precious metals sector, while still maintaining ample exposure to even higher prices.

The morning of August 5 alone, I recommended members of Fry’s Investment Report lock in profits of 145% and 195% by selling partial positions in two gold stocks… while subscribers to The Speculator who heeded my call had the opportunity to book gains of 155%, 160% and 340%.

Gold’s huge bull run came to a temporary halt this week as investors took profits and U.S. Treasury yields jumped higher on some good economic news. After all that, gold is down about 6% from its recent peak.

However, I expect precious metals to soar even higher over the remainder of this year and into the next. The favorable trends that led me to buy gold stocks last year, including a weak dollar and economic disorder, are going nowhere.

That said, as I explained in the brand-new issue of Fry’s Investment Report yesterday, I now believe a different set of metals are now lined up for their own huge bull run.

The relatively depressed prices that are typical of industrial metals are hiding their superior growth prospects.

In fact, thanks to a newly hatched commodity supercycle, many resource stocks possess considerable profit potential — perhaps their greatest potential in 20 years.

What exactly is a commodity supercycle? And how can you profit from it?

Let’s take a look.

Buckle Up for the New Precious Metals Stocks Supercycle

A new commodity supercycle is underway, and it has the power to produce sizable investment gains over the next few years.

During the last supercycle, which kicked off in 1999, the Thomson Reuters CRB Commodity Index soared 300%. Recent history may not repeat itself exactly, but don’t be surprised if it rhymes.

Unlike stocks, which tend to move higher over time, commodity prices cycle through powerful multiyear booms, followed by spectacular multiyear busts. These are called “supercycles.”

Obviously, without the benefit of hindsight, no one can be certain that this year’s commodity rally is the birth of a new supercycle. But the devastating commodity bear market of the last decade mirrored circumstances that historically precipitate a new bull market.

When commodity prices fall, resource companies lose money. As losses mount, companies do whatever they can to preserve cash.

That means they shut down money-losing operations and halt exploration activity. Both of these money-saving measures reduce production and therefore, commodity supplies. If low commodity prices persist for a long time, the weakest companies declare bankruptcy and shut down completely, reducing supply even further.

A flow chart showing that as prices rise, miners increase investment and output in their mines, but after prices peak, the mines cut costs and investment and eventually cut output, leading to the cycle restarting.
Source: Chart by InvestorPlace

This sort of underinvestment in current and future production causes commodity supplies to fall, thereby creating the conditions for commodity prices to rise. In other words, the death throes of one commodity supercycle breathe life into its successor.

And that’s exactly what appears to be underway. Global production of metals like iron, zinc, copper, nickel and graphite have been flatlining over the past few years.

Meanwhile, demand for most metals has continued to climb higher. That’s why their prices are starting to rise from multiyear lows — and are likely to rise much higher over the coming years.

Over the past four months, the CRB Commodity Index has rebounded about 40%. But even after all that, it remains nearly 70% below the all-time high it notched back in 2008. That means there’s plenty of upside potential still on the table.

Not all commodities will move higher in unison, of course. Some will advance before others and some will produce much bigger gains than others.

The precious metals, as we discussed above, have already been flying high. During the last 12 months, the silver price has jumped 65%, while the prices of aluminum and nickel have both dropped more than 15%.

But even though gold and silver have been grabbing all the latest headlines, industrial metals may soon become a bigger story.

That’s because a paradigm shift in commodity demand has burst onto the scene… which means that our current supercycle could be one of the most “super” ever.

Conjecture No More

That paradigm shift is what I’ve been calling the Second Electric Revolution – the massive global migration toward technologies like electric vehicles (EVs), renewable energy and energy storage.

All of these innovations are metal-intensive, and therein lies the opportunity.

The average solar power project, for example, requires about five times as much copper per megawatt of capacity as a conventional fossil fuel plant. Offshore wind farms demand about 10 times that, 50 times as much as coal.

The global battery market is also gobbling up a growing percentage of global metal supplies. Demand from lithium-ion batteries has grown more than 20-fold in the past 10 years.

Looking ahead, Bloomberg New Energy Finance predicts nickel demand for EV batteries will skyrocket 14 times over by 2030. The chart below shows a range of similarly mind-boggling demand projections for other industrial metals.

A chart showing the expected growth of demand for various types of metals because of the increase in battery needs through 2030.
Source: Chart by InvestorPlace

The commodity supercycle I’m predicting here is not yet a fact, of course. It is still a matter of conjecture. Which means the coming profit surge at mining companies is far from guaranteed.

But the potential gains are considerable.

When I first began discussing the Second Electric Revolution three years ago, the looming demand surge for battery metals was more conjecture than fact.

But it is conjecture no more. As the world increasingly adopts electrification technologies like electric vehicles and renewable energy, batteries become the foundation that makes it all possible.

So that my members benefit, we follow several battery metal stocks at Fry’s Investment Report, including a basket of leading metals and mining companies that I just recommended yesterday.

The base metals boom is here… and so is a brand-new commodity supercycle.

I hope you can join it.

Regards,

Eric Fry

P.S. While I believe industrial metals are the next to get sucked up into the commodity supercycle, I also continue to expect much larger gains ahead for both gold and silver. At times like these, in fact, gold is almost impossible to ignore. It distinguishes itself by delivering strong gains, while most other assets are delivering losses.

But I’m not suggesting you buy bullion, coins, ETFs, mining stocks, or any other type of investment you’ve likely heard about before. There’s something much better I’d like to tell you about today. Click here to see the full story.

Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends… before they take off. And when it comes to bear markets, you’ll want to have his “blueprint” in hand before stocks go south. Eric does not own the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2020/08/precious-metals-will-ride-a-new-commodity-supercycle-higher/.

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