As Political Dumb-Wits Beat the Drums of War: Keep Commodities Front and Centre

In today’s edition, James Cooper looks at the growing hostilities between Pakistan and India through the lens of the commodity cycle. And why it could matter more than most think.

This week, markets have been laser-focused on a China-US Trade deal. For good reason, too.

Stocks have surged since the mini-panic lows of April 7, now a whisker from their all-time highs. With so much expectation now built into equities, Trump needs to deliver.

Let’s see what happens once the curtain gets rolled back this week and whether negotiations have led to something worthy of the recent rally.

But in the background, perhaps something much bigger is brewing between two traditional rivals… India and Pakistan.

According to some sources, the recent border attacks have already been the most severe since the neighbours last fought a full-fledged war back in 1971.

But of course, the stakes are much higher today, given that both countries hold nuclear weapons.

These hostilities aren’t getting much coverage here in Australia, but Al Jazeera is one source that seems to be covering it in more detail:

“High risks’: Indian attacks in Pakistan raise fears of wider conflict”

Mining Memo’s Take

When viewed through the broader lens of the commodity cycle, there’s every reason to pay attention to this conflict.

I’ve shown you evidence in the past that conflict tends to accompany rising commodity prices.

Metal prices spike when tensions escalate… in World War I, the Vietnam War, the Korean War, and even the US Civil War. It’s no coincidence that each event coincided with record-high metal prices.

The exception was World War II, when price controls were placed on certain metals like copper to avoid speculation.

But the point is that war or the very thought of an impending conflict causes nations to ramp up military spending.

This increases demand for ‘war chest metals’ like nickel, aluminium, antimony, titanium, silver, and copper.

It also pivots investors toward safe-haven assets like precious metals.

The 2020s are rapidly being defined as a decade with heightened tension, from the war in Ukraine, Israel, Gaza, Lebanon and perhaps Iran.

And now, India and Pakistan are adding themselves to a global melting pot of failed diplomacy and a spreading wildfire that could drag more countries into a broader conflict.

But what about the moral dilemma?

Some investors might be happy to just stick with whatever goes up, regardless of the moral implications—tobacco companies, for example.

Call me soft-hearted, but I do consider the consequences of what I invest in.

Buying stocks leveraged to these ‘war chest metals’ may cross the moral red line for some investors; some might even consider this war profiteering.

But as far as I can see, every sane person wants peace, I’m absolutely in that camp.

But buying metal stocks likely to do well in a period of heightened conflict is a way of hedging your portfolio against the political dumbwits who beat the drums of war.

As investors, we should all hope for the best but also prepare for the worst at certain times. And I believe we’ve entered one of those times now.

Commodity stocks are a proven tactic that prepares your portfolio against future conflict-related shocks.

The 1970s era of stagflation is one of the most recent examples of mining and energy companies providing a strong hedge against inflation and intense geopolitical upheaval.

Use it as your blueprint for what could lie ahead…

Regards,

James Cooper,
Editor, Mining: Phase One and Diggers and Drillers

All advice is general advice and has not taken into account your personal circumstances.

Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.

James Cooper has been a working geologist in mines across Australia, Canada, and Africa since the early 2000s. He’s led the operations of tiny explorers through to huge producer outfits. He’s seen booms and busts firsthand and he also understands the cyclical nature of individual commodities. For example, James was right there when Barrick Gold launched an enormous $7.5 billion takeover bid for Equinox. That was the peak of the last cycle.

With his background as a geo and finance professional, he brings a unique insight and experience to Fat Tail Investment Research. He writes the broader resource-focused investing letter Diggers and Drillers and the ultra-speculative explorer-focused trading service Mining: Phase One.