The Federal Reserve’s decision to cut interest rates cut news combined with China’s new stimulus package is setting up one sector for a long-term bull market…
I’m talking about commodities.
Lower interest rates typically mean cheaper borrowing costs. That’s a positive for miners that must often spend large amounts of money on mineral exploration and extraction.
What’s more, the Fed has made it clear that opting for a more aggressive rate cut this month was necessary to stave off a recession and keep the economy on solid ground. That’s another positive for commodity demand.
China is the biggest consumer of most commodities. It’s also the world’s second-largest economy. So when its government and central bank try to boost the economy, it’s no surprise that we might see big gains in certain sectors like commodities.
But that’s not the only thing this space has going for it right now…
The U.S. dollar has pulled back 5% since peaking in late April. That’s more good news for commodities. The greenback and commodities typically have an inverse relationship because commodities are priced in dollars. When the dollar falls, it costs less to buy the same amount of a commodity in a foreign currency. And that increases its demand.
This bodes well for commodities both now and in the future.
Metals and minerals specifically appear to be best positioned for the current and future environment. Check out the chart below, which highlights the performance of four exchange-traded funds (ETFs) that track the commodities that are poised to continue rallying.
Gold and silver tend to do well when the dollar falls and investors are plagued by uncertainty. Historically, copper outperforms when the economy is strong, too – especially in China.
But copper is uniquely situated today. As the world leans into more renewable energy sources and builds out artificial intelligence (AI) data centers, demand for this industrial metal is likely to boom. So copper is worth keeping a close eye on right now.
Another commodity worth watching is uranium. I’ve written before about how uranium could be a big potential winner as the nuclear energy renaissance continues.
Various tailwinds are at work right now to boost the commodities space. But building out a commodity basket today makes even more sense given what’s coming next…
The U.S. presidential election.
Volatility is likely to increase in the month leading up to Election Day, and some folks might look for a way to hedge their bets with investments in gold and silver.
Increased geopolitical tensions could also boost these precious metals.
But let’s say everything goes smoothly with the election and the geopolitical headlines slow. Copper still stands to benefit from a growing global economy. And uranium will see continued demand over the long term as it’s clear that the only path to our goal of net-zero carbon emissions by 2050 is more nuclear power plants.
So, does your portfolio have exposure to commodities? If not, now is the time to think about adding some diversification. The paths I laid out above are a great place to start.
Here’s to the future,
Matt McCallEditor, Market Insights
The post Don’t Miss Out on This Sector’s Breakout appeared first on Centurion Publishing.
