It's Contrarian Buying Time for This Metal

Written by Nick Hodge
Posted August 22, 2018 at 11:54AM

If you’re serious about “blood in the streets” or contrarian investing, now is the perfect time to take a look at the mining sector.

The sector hit a low for the year earlier this month, as evidenced by the S&P Metals & Mining ETF (NYSE: XME).

2018 Mining ETFVolume has fallen off a cliff as well.

Some of that is to be expected in mid-August — the so-called “summer doldrums” when investors trade their laptops for RayBans.

But much of it has to do with the bigger picture.

Trump’s tariffs and the resultant trade war have stirred the global economic pot, to say the least.

And the dollar — the world’s cleanest dirty rag of a currency — has seen relative strength, which makes everything much more expensive for everyone else.

It now takes 14,600,000 Venezuelan bolivars to buy a single chicken.

Bolivar ChickenWe saw the Turkish lira collapse last week.

And metals’ prices have followed suit with the strong dollar making them ever-cheaper.

Gold has fallen from over $1,300/oz to $1,160 in less than three months. Other precious and base metals have endured the same fate.

Copper, which was in a bull market earlier this year with prices rising to near $3.20/lb, has now entered a bear market with prices falling toward $2.60/lb.

This is when you want to be buying the best-of-breed companies in the mining space.

They are cheap. There is investor pain. Long-time bulls in the sector are questioning their loyalties.

Enter a major global base metal for which Wood Mackenzie expects a market deficit this year of 350,000 tonnes and another deficit in 2019 of 150,000.

That means the world isn’t going to supply enough of this metal to meet demand this year or next year — a very bullish sentiment in the most elementary of ways.

Not only that, global stockpiles of this metal have been falling for years as complacency set in across the entire mining sector.

Warehouse stock levels have fallen from over one million tons to around 200,000 tons in the past five years, which you’ll note is not enough to make up for the projected deficit.

Looming Metal Shortage

This looming supply gap is why prices for this metal hit an 11-year high earlier this year, rapidly surging to over $1.60 per pound.

But the recent events I described above have driven prices back down sharply, creating the perfect entry in a sector we know is facing a global supply shortage.

Make no mistake: The scramble is on to find more of this critical metal.

No new major sources of it have come online since 1990, yet uses for it continue to mount, including in high-end electronics.

Not only are we already facing a shortage, but a 900% spike in demand for it is expected in the years ahead.

Our resident mining expert is onto a company that is racing to help fill this emerging supply gap.

It’s already made a discovery of it, but is drilling now to help determine exactly how much of it is there.

If the drilling samples match up with early results, which we expect, it means the underground deposit is so large it could help solve the looming global shortage.

All told, it could be worth billions.

And with prices so cheap now because of short-term issues, now is the perfect time to get in.

If you’re looking for undervalued, out-of-favor investments with explosive upside potential, this is about as good as it gets.

Full details on the situation here.

Call it like you see it,

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Nick Hodge

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Nick is the founder and president of the Outsider Club, and the investment director of the thousands-strong stock advisories, Early Advantage and Wall Street's Underground Profits. He also heads Nick’s Notebook, a private placement and alert service that has raised tens of millions of dollars of investment capital for resource, energy, cannabis, and medical technology companies. Co-author of two best-selling investment books, including Energy Investing for Dummies, his insights have been shared on news programs and in magazines and newspapers around the world. For more on Nick, take a look at his editor's page.

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