About once per year, the media – and investment analysts who should know better – try to scare the heck out of commodity investors with claims that "copper inventories are soaring."
The thinking is that if copper inventories are rising and near all-time highs, then copper is headed lower... and so are copper-mining stocks.
Today, I'll show you why those claims are wrong. And I'll show you why, counterintuitively, high copper inventories are not a reason to sell your copper miners.
If anything, high copper inventories are a reason to buy copper miners...
When supply hits its peak, the wrong-headed pundits say copper prices must fall. But as we can see from the chart below, by the time supply peaks, the copper price is nearly at its bottom.
In the chart below, the black line represents copper stockpiles stored in the London Metals Exchange (LME) warehousing system. This is the most widely watched level of copper inventories in the world. You can see that this level regularly booms and busts. The blue line in the chart represents the price of copper.
It sounds odd to most folks that high copper inventory levels tend to coincide with price bottoms. But that's the nature of the markets. By the time the mainstream press reports on something, chances are good prices will have already factored in the story.
That's why it doesn't make sense to trade in the direction of news headlines. It makes sense to study the numbers and facts.
In this case, the facts are telling us to ignore news articles that cite "experts" who tell you to avoid copper and copper stocks because inventory levels are high. History shows that these high inventory levels tend to mark buying opportunities, not selling opportunities. The one time in 2011 that inventories were high and copper prices declined, the decline was shallow.
This is why I encourage readers to hold on to shares of copper producers like Southern Copper and Freeport-McMoRan. Yes, inventories are high... and the news sounds negative. But when you understand the real story, you realize it's not an excuse to sell copper.
Cameco is still telling us that the worst is over for uranium stocks...
Late last year, I wrote about the building supply/demand crunch coming in the uranium market.
Uranium is the fuel that powers nuclear reactors. Physical uranium and uranium stocks were crushed after the 2011 Japanese nuclear disaster. But over the past year or so, the sector has managed to put in a tradable bottom. Since uranium stocks are badly oversold and since uranium demand will keep rising, the situation presents the opportunity to make enormous gains.
You can monitor this situation with shares of Cameco. It's by far the largest publicly traded uranium producer. It's the industry's blue chip.
As you can see from the chart below, Cameco is still holding above its crisis lows. And owning uranium shares like Cameco is still a good contrarian trading idea.
