How to Position Your Portfolio for This 'Super Rally'

This year is full of surprises. Luckily, most of them were good.

First, gold prices crossed and stayed at over $2,000 per ounce. Which was a psychologically important level for most investors.

Then silver took off, and so did copper.

It feels like the next commodity supercycle is in the making.

Let’s take a look at these three metals and see if that’s the case.

We hope that this overview helps investors navigate this bull market.

Gold

We’ll start with the elephant in the room.

The gold price recently reached a record high of $2,425 per ounce. Although it has corrected, gold still trades well above its long-term averages.

The metal has seen a significant amount of demand from an unknown but powerful group of buyers. This demand didn’t come from exchange-traded funds (ETFs). Also, it’s unlikely that this demand came from retail investors, as it would require massive buying power to move the entire gold market.

It could be central banks since they do not report activities frequently, and some don’t feel obliged to keep detailed scores of their purchases at all. Think of China, Russia, North Korea, or similar countries.

Plus, this mysterious buyer has been after physical gold, not paper derivatives or gold equities. Which means that this demand surge reflects a likely long-term investment, not a short-term speculation.

Keep in mind that the price of gold does not follow the usual supply-demand dynamic. It’s a precious metal with a monetary function, so central banks are building up gold reserves, not copper or nickel. Those are industrial metals without monetary value.

Not even silver.

That said, it’s unlikely that all the recently accumulated gold will be sold back to the market. More likely, it’s a long-term investment holding, insurance against crises, wars, and other “black swan” events. After all, gold, unlike any fiat currency, is no one’s liability. It doesn’t depend on the global financial system as much as paper money or equities.

This is why we expect gold prices to remain strong in the near term.

Silver

Silver is called “poor man’s gold” because, like gold, it has a monetary function. And while gold is a long-term investment, silver is a more suitable tool for speculation.

The price of silver often follows gold’s price. However, it tends to outperform gold during bull markets.

We saw that when its price crossed $30 per ounce. That’s another crucial psychological level for investors.

Historical data shows that this bull run is not at its peak yet. In our view, silver has plenty of room to run before it reaches its 2011 record of $48.45 per ounce.

In addition to its monetary functions, silver has an industrial side. It can be sensitive to a shortfall in mining output or a rapid surge in demand.

Solar panels, jet engines, antibacterial coatings, and everyday gadgets use over half the global silver supply.

Silver has the advantage of being both a monetary and an industrial asset. The latter side will be exposed to global economic growth.

Another metal that will be even more sensitive to global economic expansion is copper.

Copper

Copper has no monetary component. The metal is sensitive to growth in real estate, as well as car manufacturing, energy, infrastructure and other major sectors.

The latest news shows that China, the largest copper consumer, is stockpiling the metal as it has never done before.

Copper price responded to this demand surge and breached $10,000 per tonne. However, investors should remain cautious.

This wave of demand looks short-lived. It’s not like the country’s organic growth in the early 2000s.

That’s why we will be cautious about betting on higher copper prices in the next 12 to 18 months. Once China stops hoarding the metal, we may see a healthy price correction.

However, we see copper as a sound long-term investment.

Takeaway

All these metals have had a great run so far this year.

Going forward, we see a strong potential in gold and related equities.

Silver will likely follow gold here and may eclipse it later in the cycle. Hence, silver stocks can be a more speculative bet for those with a higher risk appetite.

As for copper, we expect a metal price correction unless China starts growing fast again. It might be a bumpy road in the near term, but the long-term outlook looks promising.

In the near term, investors should focus on gold and silver. Copper, in comparison, is more of a long-term pick.

Investors don’t need to hold the actual metals, of course. They could consider exchange-traded funds (ETFs), while individual stocks can provide better exposure to these metals. Picking a stock requires specific knowledge, and this FREE BOOK will be a good place to begin.

However, keep in mind investing in any specific stock carries significant risk. These tend to provide leverage to the underlying metals, both on the upside and on the downside.

Please do your own due diligence and invest according to your risk tolerance and investment horizon.