Market Musings 300825: Commodity-related stocks to the fore
Market Musings 300825: Commodity-related stocks to the fore
French financial markets took a tumble this week off the back of renewed political uncertainty, with the current administration led by Francois Bayrou subject to a parliamentary vote of confidence on 8 September, which they are likely to lose. The likely result will be that French President Emmanuel Macron will need to appoint yet another new Prime Minister in order to form a new administration, who will be unable to get a cost-cutting budget passed by the French parliament. This has hit both French stocks in the form of the CAC-40 index and also Eurozone banks, with French banks falling due to this uncertainty.
French stocks, Euro banks hurt by French political uncertainty
Interestingly, there has been little wider contagion from this French domestic budget stress to the wider Eurozone, with the euro holding close to $1.17 and 86p and retaining the bulk of its gains since the start of this year against these two currencies.
Euro little affected by French concerns, so far
UK banks also took a tumble this week off the back of rumours that the Labour government will unveil a new bank levy in the upcoming UK Budget. This has been levied before on banks, with the Chancellor of the Exchequer Rachel Reeves looking to raise further tax revenues. Hopefully this will not become a reality, and then these banks can recover on the subsequent relief.
Good recent run for UK domestic banks comes to an abrupt halt
In the US, the long-awaited Nvidia quarterly results outlined strong growth, but perhaps guidance for the rest of the year that was not as outlandishly strong as some bullish investors had hoped for. The Magnificent 7 group of mega-cap tech stocks have pulled back a little in the past few days after a 50% advance from the April lows, threatening the solid 4-month uptrend.
Magnificent 7 cool post Nvidia results
Recall however, that for pound- or euro-based investors, US large-cap stocks have delivered weak returns in spite of the huge rebound since April due to the weakness of the US dollar; +2% in pounds, and even less in euros...
All about commodities!
For me, the strongest group of stocks and sectors have all been commodity-based.
I see a lot of relative strength either evident or emerging in the following commodity-related areas:
Precious metals: Gold, Silver
Nuclear: Uranium miners
Strategic Metals: Copper, (silver), Rare Earth Metals, Lithium
European Oil & Gas
Brazil (heavy weighting to iron ore and oil & gas)
New all-time highs in gold, gold miners at highest since 2011
With silver close to $40/ounce, silver miners also benefit
Uranium: physical uranium price slow to rise, but uranium miners and theme rise
Brazil: time to look again as Brazilian real no longer depreciates? High dividend yielder
Dominated by Banks, iron ore and oil & gas
Europe Oil & Gas grinds higher, Ithaca Energy in the lead
Strategic Metals rally further: Copper, Lithium, Rare Earth Metals Miners
Note that lithium/battery metals have been a very volatile theme in the past, doubling over 2016-17 then dropping nearly 50%, before going up over 4 times from 2020 to the end of 2021, then dropping 60% before bottoming earlier this year. This upcycle could have a lot of potential therefore, simply based on the past 2 cycles.
Lithium & Battery Metals ETF has extreme up and down cycles
Good luck for the coming week,
Edmund
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9 comments
Gold on an historical basis does have prior in terms of mega tends, I have a good few miners as well as a bit of the yellow stuff : it's been one of my themes since 2023
- in terms of when is enough or too much , the below is useful as a reference framework (some research I did at the start of 2025) , If we follow similar pathways to the historical ones (and the macro overlays do suggest we may) , gold may well top in the $5500-6000 region if we are in a similar cycle . Doesn't mean that is axiomatic and the progression is very unlikely to be linear and may be prone to a good few bumps in the road . Given that CBs now hold more gold than US treasuries, de dollarisation and the relative USD weakness drives the denominator while uncertainty, risk, inflation and all the other bogey men help drive the ordinator: path of least resistance does look higher even if this is becoming crowded
For me the best play is the PGM miners and I have had a stunning year because of them : they have yields as well as capital appreciation for those adverse to the pet rock thesis with its carry cost
UK's best performing sector by a country mile or ten +86% YTD - see rel sector map
Looking inside the sector on a relative price basis Empire Metals (LON:EEE) +600% Orosur Mining (LON:OMI) 500% Altyngold (LON:ALTN) Serabi Gold (LON:SRB) Thor Explorations (LON:THX) Fresnillo (LON:FRES) Pan African Resources (LON:PAF) all up 100-500%
Been a holder of SRB, THX, PAF SLP - these runs aren't done yet IMO as many miners have improved efficiencies and their margins just expand as the underlying goes higher (or even sideways arguably ) . Especially true if oil prices remain muted or lower as one of their biggest input costs
I post stuff on X here and on runprofits.com
I agree with dscollard.
The gold miners on a PER below 5 and a rising gold price are a screaming buy. It is a cyclical market so you will need to get out at some point. But I suspect this is at least 9 months away.
One way to tell that it has topped is when gold investing becomes mainstream. I have noticed a few articles in the Daily Mail recently which have said that the readers might consider looking at gold and gold miners. When they start to say that everyone should have this as a core investment that would be the time to bail.
100% agree with you Epitychia
I certainly agree with your suggestion for the eventual peak of this particular bull run dscollard. If anything, my estimate is a bit higher. Even if a relatively short final spike. Especially if the dollar really tanks at some point in the next few years. C
Thanks Edmund, great article and I wholeheartly agree with you on precious metals, especially Gold.
The problem I know Im going to have is not buying it (I have) but its when to sell? With a share one goes on whether its over valued against its results. At some point the share price tends to catch up and can overtake whats happening with a share. But with the Gold price we just dont get that. It comes down to a feel I reckon. Perhaps when its viewed that everyone has bought in and Gold is seen as it can only keep going up then maybe sell. But in reality its very difficult to do this. If I feel the price has topped then I'll be selling the Gold share for sure.
For the moment though thats not the a problem, its about running ones profits........
How's this for a thought oaktree. Keep buying/hold whilst the spot price is ahead of the latest HY average sales price for the miner you have invested in. Sell when it trends below?
Could end up being a few months out as these only seem to be shared bi-annually.
FWIW oaktree, I’ve currently got a gold stock I’ve held for 20yrs. I’ve previously held Gold companies for similar - and held plenty of them over the years. I’ve sold when the profits in them were needed, or i felt they had reached a level i just didn’t want to lose (multi-baggers), or when they’ve been taken over, gone bust or de-valued to a point where it wasn’t worth holding any longer. So a real mixed bag. But i do have some logic/rationale behind it all.
My investment strategy is based upon the ‘value’ of gold NEVER going down. By that i mean on a 5/10/15yr basis etc. I know there will be times when it spikes and drops. Holding to that strategy is helped by also buying gold (and silver) coins. I bought most of my coins when the gold price was around 5-600 dollars an ounce. I’ll assume you are aware of the significant tax benefits of coinage and it is likely i may never sell these. My kids might though :-).
Looking forward, i see little change to looking back, ie since i became a gold bug. I believe the gold price will be around 35,000 dollars an ounce in 20yrs. Regardless of what happens globally and to fiat currency. I see nothing that will be significantly conducive to gold hitting the skids for the first time in 5,000yrs. I don’t think the human race is that ‘talented’ so i am relying on more (broadly) of the same (mess). Good luck and enjoy the present run. Chris
Very useful. I would also add that Silver is worth consideration.
Thank you Edmund for showing such good news. All the Best for September.