Is the precious metals market playing a “rich-making game”? Gold, silver and copper are “rising”, and these Hong Kong and US stocks are expected to benefit!

Futu News ·  May 20 17:31

The precious metals market is playing a “rich-making game”!

Following gold, the prices of silver, copper, and various non-ferrous metals rose one after another. On Monday, spot gold continued to hit a record high. Spot silver reached the $32 per ounce mark, continuing to hit a new high in 11 years, and hit a record high in the Lundian copper market.

As investors' expectations that the Federal Reserve will lead the world's central banks to cut interest rates during the year continue to heat up, and news surrounding the helicopter accident involving the Iranian president has also stimulated safe-haven demand in the precious metals market.

Why does the price of gold continue to strengthen?

Market analysis indicates that the continuous rise in gold prices is likely to be closely related to two factors: first, the market's expectations for the Federal Reserve to cut interest rates, and the other is geopolitical tension in the Middle East region.

First, judging from the expectations that the Federal Reserve will cut interest rates, the US inflation data released last week shows that the inflation rate has declined, which further strengthens the market's expectations that the Fed may cut interest rates early. As expectations of interest rate cuts increased, the depreciation effect of the US dollar became apparent, and precious metals denominated in US dollars, such as gold, benefited from this, and prices were raised.

Second, the growing geopolitical tension in the Middle East has increased market demand for safe-haven assets. Furthermore, active adjustments in domestic real estate market policies have also contributed to a general rise in industrial product prices. The combination of these factors has contributed to the continued rise in the price of gold.

Also, according to the latest 13F, Michael Burry, the prototype actor in the movie “The Big Short” and legendary hedge fund manager, purchased more than 440,000 copies of physical gold trusts in the first quarter$Sprott Physical Gold Trust (PHYS.US)$With a total value of over 10 million US dollars, this became the number one position target in Scion Asset Management's holdings, which he manages.

A Sprott physical gold trust is a closed-end fund characterized by directly holding physical gold rather than gold derivatives or stocks.

Is the whole world crazy about copper?

In recent months, the long and short confrontation in the copper market has mainly revolved around supply gaps and expectations of increased demand. Previous articles“Don't just focus on tech stocks! Commodities are booming. What are the investment opportunities in the Hong Kong and US stock markets?》As mentioned, according to the Tianfeng Securities Research Report, copper is a product with a story, and there are stories to tell on both the demand side and the supply side.

On the demand side, the long-term story of copper is the transformation of old and new energy systems. Because to reduce the share of non-fossil energy consumption, it is necessary to increase the proportion of energy converted into electricity once. Whether it is generating, transmitting, or using electricity, or electric vehicles replacing fuel vehicles, copper can tell a long-term story on the demand side, so there is a saying “copper is the oil of the new era.”

On the supply side, the long-term story of copper is that the grade of fine copper ore continues to decline. Over the past decade, copper grades in a few major producing countries have declined by an average of about 25%. As the grade decreases, so does the corresponding operating cost.

Starting in the second half of 2024, copper supply and demand may begin to be tight again. At this point, it is “story time” for copper again. Although China accounts for half of the world's copper consumption, due to the high concentration of the supply chain, the pricing power for copper is still dominated by overseas, and it has certain financial attributes.

Due to financial attributes, the price ratio between copper and gold has a relatively fixed fluctuation range. Once the price of gold rises significantly, the copper price will follow even if it is not driven by liquidity. After the recent rise in gold prices, the price ratio of copper to gold has reached a low level in three and a half years, and the financial pricing of copper has begun to take effect.

However, there was a sharp shift in market power last week, and the New York market's pioneering shortfall shocked the financial world.

Matthew Heap, portfolio manager at Orion Resource, the world's largest metals fund management company, said:

Many Western funds missed the gold price increase, but it is clear that they clearly don't want to miss out on the copper market. This shows that the copper market has a clear story, and even in elevators, it is possible to simply explain the reason for its price increase.

It is worth noting that the continued tight supply of copper has caused institutions such as Citibank and Goldman Sachs to “wave their flag” that copper may rise to 10,000 US dollars per ton by the end of the year.

Citi said in April that the price could reach 10,500 US dollars/ton in the next three months. The average price for the second and third quarters is expected to be 10,000 US dollars/ton, compared to the previous estimate of 9,500 US dollars/ton.

According to Citibank's new recent bull market forecast, as copper inventories in LME and the Shanghai Futures Exchange fall sharply over the next three months, copper prices may even reach 12,000 US dollars/ton during this period.

Goldman Sachs, on the other hand, raised the forecast value for copper prices this year from 10,000 US dollars/ton to 12,000 US dollars/ton, indicating that the copper price must rise to 15,000 US dollars/ton next year to avoid a supply gap. Goldman Sachs expects the copper density of AI data centers to increase from 25 tons to 40 tons per megawatt.

The chief strategy officer of investment group Carlyle, former global head of commodity research at Goldman Sachs, and proposed the “commodity supercycle,” has called out that copper is the new “oil,” and the current copper deal is the most notable deal he has seen in his career of more than 30 years. According to his analysis,

Copper has long been touted as a big winner in the global electrification process, including electric vehicles and large-scale grid upgrades. Stronger environmental policies have sparked industry-wide competition for copper. This metal is used in everything from solar energy to electric vehicle batteries, and plays a central role in the greening of the world.

In addition, artificial intelligence (AI) is also expanding industry demand. After all, emerging technologies depend on improved grids, and this also depends on the supply of copper. But at the same time, it will take years for the new copper production capacity to actually be put into operation.

Is the strength of gold and copper being transmitted to silver?

Since this year, the price of silver has soared 32%, surpassing gold and becoming one of the top performing major commodities this year.

Everbright Futures said that the strong sentiment of gold has gradually spread to the silver market. Currently, the gold and silver ratio is at a historically high level. If from the perspective of the return of the gold to silver ratio, the upward elasticity of silver is significantly higher than that of gold, which will undoubtedly also push the current round of gold and silver trends to another climax.

The two precious metals, gold and silver, fluctuate to a large extent simultaneously because they both have similar macroscopic and monetary characteristics. As gold purchases by central banks around the world increased dramatically, retail investors' interest rose, and expectations of US interest rate cuts rose, the price of gold reached a record high, and silver also rose.

Some analysts pointed out that, supported by potential factors such as the widening gap between silver supply and demand, silver may be at the front end of the strongest upward cycle in history.

Furthermore, Phil Streible, chief market strategist at futures company Blue Line Futures, analyzed that copper's strong gains are spilling over to silver because silver is also regarded as an industrial commodity and is widely used in fields such as solar cells. It says:

The three main factors affecting commodity prices are supply, demand, and price trends. Silver currently has a combination of all three.

However, there are also analysts who are relatively cautious about the upward trend in silver.

UBS pointed out that since many investors were caught off guard by the speed and magnitude of the rise in gold prices, at this time, silver provided investors with an opportunity to catch up. The supply and demand of silver itself is indeed tight, but it is not enough to support the sharp rise in silver prices. However, in the face of soaring gold prices, silver is naturally favored by investors as a cheaper and more volatile alternative to gold.

HSBC anticipates that global demand for silver coins and silver bars will decline. Many individual investors have bought large amounts of silver coins and silver bars in the past few years, and there is currently little interest in further increasing their holdings. High silver prices prompted more coins and bars to flow into the second-hand market, which reduced the demand for newly minted silver coins and bars. Although global inflation still exists, it is gradually easing. The outlook for silver demand in the jewelry industry is not optimistic. The supply of silver is smaller than demand, which helps prevent a sharp drop in silver prices, but it is not enough to support a long-term bull market.

As the saying goes, “Gold is good for investment, silver is good for speculation”. This is because the gold market is difficult to monopolize and manipulate, and the silver market is easy to monopolize and manipulate. Investors need to be aware of the risks involved.

What are the beneficiary stocks in the Hong Kong and US stock markets?

As the prices of precious metals such as gold, silver, and copper soared, many related concept stocks also rose in the Hong Kong and US stock markets. Futu News has sorted out some gold, silver, and copper concept stocks for the reference of bulls.

In the US stock market, the world's third-largest gold mining company in Africa$AngloGold Ashanti (AU.US)$The cumulative increase during the year reached 37%. Canadian Gold Mining Company$Agnico Eagle (AEM.US)$Up nearly 30%; world's fifth largest copper producer$Southern Copper (SCCO.US)$, American mining giant$Freeport-McMoRan (FCX.US)$Both recently hit new highs, rising 48% and 28% respectively during the year; Canadian Silver Mining Company$Silvercorp Metals (SVM.US)$,$MAG Silver (MAG.US)$,$First Majestic Silver (AG.US)$During the year, it increased by more than 50%, 35%, and 29%, respectively.

In the Hong Kong stock market,$CHI SILVER GP (00815.HK)$The increase is very impressive; it has more than doubled during the year;$MMG (01208.HK)$The cumulative increase during the year was over 89%.$CHINAGOLDINTL (02099.HK)$,$JIANGXI COPPER (00358.HK)$A cumulative increase of more than 70%,$CHINFMINING (01258.HK)$Up nearly 70%,$ZHAOJIN MINING (01818.HK)$,$ZIJIN MINING (02899.HK)$Up more than 50%,$SD GOLD (01787.HK)$A cumulative increase of more than 30%.

According to the Guohai Securities Research Report, copper ore stocks and copper prices have initially emerged from a state of strong stocks and weak traders, and copper prices are expected to enter a new round of major upward waves. The bank believes that

Currently, as copper prices approach the high in 2022, the trend of strong and weak copper stocks has gradually emerged. We believe that the current copper market trading environment may be similar to 1996 and 2006. The copper price market has entered the middle, and the volatility is expected to increase under the influence of active speculative trading. The current market's expected “re-inflation” or “soft landing” in the US will be more difficult to change the upward trend in copper prices, and the upward space for resource stocks is also expected to open up further.

Also, if investors don't want one or more resource stocks, there are many ETFs to choose from in the Hong Kong and US stock market:

Gold ETF:$SPDR Gold ETF (GLD.US)$,$Gold Trust Ishares (IAU.US)$,$VanEck Gold Miners Equity ETF (GDX.US)$,$VanEck Junior Gold Miners ETF (GDXJ.US)$,$SPDR Gold Trust (02840.HK)$,$Value Gold ETF (03081.HK)$etc.;

Copper ETF:$Global X Copper Miners ETF (COPX.US)$,$SPDR S&P Metals & Mining ETF (XME.US)$,$ISHARES COPPER AND METALS MINING ETF (ICOP.US)$,$United Sts Commodity Index Fd Com Unit Repstg U S Copper Index Fd (CPER.US)$,$Ishares Inc Msci Glbl Mtl&Mng Produ Etf (PICK.US)$etc.;

Silver ETF:$iShares Silver Trust (SLV.US)$,$Abrdn Silver ETF Trust (SIVR.US)$,$Global X Funds Global X Silver Miners Etf (Post Rev Spl (SIL.US)$etc.

Read more: Futubull Classroom | How to invest in gold through ETFs


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