Categories: Stock Market
Topics: Commodity Stocks

Bargain Hunting Season Has Arrived: Consider the Current Commodities Pullback a Gift

The 10-year treasury yield is retreating after touching a 16-year high with the dollar index surging past the 107 level before the recent pullback. This, while oil remains at or above the US$85 level and with geopolitical tensions as high as they’ve been in quite some time (and on many fronts).

All of this, of course, has real-life consequences. The 30-year mortgage is now near or above the 8% level. And while many worry that the Fed’s drive to fight inflation will lead to a technical recession, those of us that live in reality already feel the pressure that higher rates, along with a slowing economy, impose.

China cut its holdings of US Treasuries for a third month in a row in June, reducing its stake by US$11.3 billion to US$835.4 billion.

The risk of a significant market dislocation increases with every dollar tick higher.

Home affordability continues to decline. Precious and base metals have felt the pressure as well with gold now below the US$1,900/oz level; it looked to be headed closer to US$1,800 before the recent reversal following the events in the Middle East.

Copper continues to move closer to US$3.50 per pound than US$4.00 per pound. 

Savings for American families outside of the wealthiest 20% are lower than when the pandemic began according to the Federal Reserve. For the bottom 80% of households, income, bank savings, and liquid assets were lower this summer than they were in March of 2020.

The Kobeissi Letter recently published data showing that, since the Fed started raising rates, a record US$870 billion of deposits have left US banks. As the letter describes, this is by far the biggest deposit flight in US history.

I highlight all of this to say that whether you dabble in the stock market via your 401k, or speculate in small cap junior resource stocks, like I do, this is a time of caution as October has historically delivered black swan events that are unexpected (as the name suggests) and violent.

In the junior resource space, I returned from the Beaver Creek Precious Metals Summit a few weeks ago, and the sentiment was what I imagine it is for many of you. 

Those of you fortunate enough to have patient cash to deploy are hunting. Bargains abound, and it really is just a matter of picking your commodity, risk tolerance, and having the liquidity to ride out the fits and starts until the eventual market rerating comes.

I’ve added gold and copper exposure recently with a multi-year horizon. I’ve added significant lithium exposure in both private and public companies during this pullback in the Chinese spot price (China dictates pricing and the market seems manipulated). The lithium consolidation has led the entire sector lower. 

I’ve seen this before... and each time it was a gift to be taken advantage of. It’s not just me saying it or voting with my checkbook; it’s the big boys and gals that see the writing on the wall. And they’re not writing checks or positioning for a month or two; they’re writing checks for the next several years and decades.‍

There is reason to be cautious in the near-term but there are also bargains out there that should be taken advantage of. Get that done. 

You can see what I’m buying now in the most recent issue of Junior Resource Monthly.

Gerardo Del Real
Editor, Daily Profit Cycle