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On December 17, 2015, the gold price hit $1,051 per ounce. That was the lowest gold price in five years. More importantly, it was below the “drop dead” price of most gold mining companies.

Gold miners are in the commodity business. They balance the costs of energy, concrete, iron, water and people versus the value of gold. No matter how great the mine is, how rich the ore or how easy it is to mine, there is a bottom line. A minimum cost per ounce of gold to keep the company solvent.

It’s called the “all-in sustaining cost.” That’s how much money it costs the company to keep the lights on per ounce of gold produced. And in 2015, it was universally more than $1,050. …

Originally published at:

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Sipping cocktails with a group of celebrities, CEOs and fund managers, I learned about a looming metal shortage.

On a posh pool deck outside a swanky hotel in Las Vegas in 2016, I bumped into an old friend. He is a star in the mining world. He always seems to be in the right place, and in the right commodity, to make money.

At his invitation, I found myself getting off a jet in Dublin, Ireland, in November 2016. My hosts were the executives of a mining company with a history of anticipating markets. They routinely got out ahead of trends. …

The price of silver is up 10% in three weeks. That’s unusual for silver right now.

We only saw silver rise 10% within a month four times this year. The last time it rose 10% in three weeks was almost a year ago.

Like gold, 2016 was a strong year for silver. The price soared through the first half of the year. It ended down from its high, but still up 15% overall.

However, in 2017, the silver price only gained 4%. The price bounced up and down, never really breaking out. …

In 2017, the S&P 500 had a “perfect year,” in which it rose nearly 20%. It was the first year since 1990 that the S&P 500 rose 12 months in a row.

However, three unloved and overlooked metals beat that performance soundly.

Lead, zinc and copper all had outstanding years in 2017. They returned 26%, 30% and 30%, respectively.

However, most investors had zero exposure to the sector last year. The base metals space spent the five years from 2011 to 2015 in a brutal bear market…

…until 2016, when the sector began to show signs of life.

Shrinking Supply

You can see what I mean from the chart…

Happy new year! You will spend this year hearing about how much more expensive all our “stuff” will become thanks to rising commodity prices. Oil, copper, lead, zinc, etc. … it’s all going to go up.

The reason is simple. While the market spent the last five years ripping higher, commodity prices have not. The chart below tells the tale:

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This is a chart of the Commodities Research Bureau (CRB) Commodity Index. It’s made up of 19 fundamental commodities. The table below shows the breakdown:

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As you can see above, the entire commodity sector lagged the rest of the stock market. That trend is now over. Copper, zinc, lead, nickel and oil went up 32%, 30%, 24%, 25% and 15%, respectively. …

It was a brutal six years for the mining industry. While some metals saw their prices rebound in 2017, others didn’t.

There is a formula for rising prices — demand must exceed supply. In some cases, like zinc, a lack of investment meant supply fell below demand. Copper, whose price rose 27%since early 2016, is another metal that will struggle to meet demand.

In 2018, a different metal’s price will begin its rise…

Platinum’s New Trend

Here’s a six-year price chart of platinum:

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You can see the steady decline from 2011 to 2016. The price fell by more than half to January 2016. There was a brief rebound that year. …

Natural gas is the new go-to source for electrical power. And the price of natural gas could become more expensive in 2018.

Natural gas spent many years running a distant second to coal as a fuel for electricity. That wasn’t due to its properties. Natural gas is an excellent fuel that releases just two molecules of water and one of carbon dioxide when burnt.

Coal was dominant because it was cheap and portable. Natural gas was expensive and tough to move without pipelines. Then the shale revolution swept the U.S. in the 1990s.

The price of natural gas plummeted. Pipelines went in all over the place … and natural gas displaced coal for the top spot. …

The forecast showed an extra 20 million pounds of uranium production for 2018 … with no buyers. As you can imagine, the uranium price plummeted.

It hit its lowest price in October 2016 at $18.75 per pound. That touched a 13-year low price.

The downtrend began back in 2011. The uranium price peaked at $72.50 per pound in January 2011. It fell steadily since then, down a total of 74%.

This is a shocking result for an energy source that many embraced as a “green” rescue from hydrocarbons just a few years ago. Nuclear power creates safe, carbon-free energy.

The problem is, it can cause huge disasters. That’s what we discovered when the Fukushima disaster struck Japan. …

China is the “mouth of the world” when it comes to commodities and the data shows that China will have a significant, positive impact on mining investments during 2018.

Look at any list of the world’s largest commodity consumers, and China is at the top.

It consumes half the world’s thermal coal production (used for power generation). It uses nearly half of all the aluminum, nickel, zinc, copper, iron ore and lead production.

So, when demand from China goes up, it usually sends prices up too. That’s great news for copper.

According to Bloomberg, November’s copper imports hit a record. The data is still preliminary, but according to that data, natural gas, copper, coal, iron ore and soybean imports are all up. …

There is good news for natural resource investors out there. The Baltic Dry Index (BDI), which is a benchmark of shipping rates around the world, hit a four-year high.

The BDI tracks shipping of grains, oil seeds, coal and iron ore. These are fundamental components of the global economy. So, when the cost to ship those goods goes up, it means the global economy is improving.

And that’s great news for natural resources.

The Global Economy

You can see what I mean in the chart below:

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The BDI hit its highest point since 2014 on a strong move up since July 2017.

The BDI tracks the recent moves in commodities as well. Base metals like copper and zinc are moving higher too. When the price of the commodities moves higher, as well as the cost to move them, we know demand is rising. …


Matt Badiali

20-Year Veteran of the Natural Resource Industry and Editor of the Real Wealth Strategist.

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