Mining hits new highs, as world awaits Trump

Mining shares are riding high

Will Trump boost gold as well as other commodities?

According to measures used by Liberum, the mining sector hit a 52-week high this week. Who knew that with all the uncertainty surrounding Donald Trump’s election, the market would be long on the fundamental building blocks of the global economy, raw materials?

But long the market is, and it’s easy enough to see why.

Firstly, stripping away the idiosyncrasies of his own language, Trump’s talking stimulus. Second, although he’s volatile and vocal about protectionism, again in his own idiosyncratic way, most market participants just don’t buy it.

Sure, Trump can tweet against Mexicans and in favour of Ford, but can he really bring back quality manufacturing to the US? After all, the reason it went in the first place remains the same – they make cheaper and better stuff elsewhere.

For the proof, just watch Episode 10 of the Grand Tour, Jeremy Clarkson’s new TV show. Now Clarkson is a great British export, working for Amazon, a great American success story.

But, be that as it may, the issue he highlights in Episode 10 speaks to the weakness of US industry directly, never mind the success of his own offering. The top 5 selling cars in the US are all Japanese, he joshes his American audience in Nashville, naming them directly as the Toyota Camry, the Honda Civic, the Toyota Corolla, the Nissan Altima and the Honda Accord.

Not an American among them, and surely an uphill struggle to get even one name in there, let alone five, as Trump’s “Make America Great Again” campaign would surely wish. How is American manufacturing going to be able to compete, given the re-emergence of inflation as an economic factor, the strength of the US dollar and the hawkishness of the Fed?

What a contrast with the UK, which is currently undergoing its own economic spasm in response to globalisation. There, the currency hit a thirty-year low against the dollar, before rallying slightly on a speech in which Theresa May sounded slightly less uncertain than people thought she would.

But the UK economy is not why investors buy miners, even if the weak pound is exaggerating the attractiveness of the locally-listed offerings. The reason is China, where growth, though moderated, continues to impress, and America.

An American economy revitalised by the debt, or whatever means Donald Trump ends up funding his infrastructure spending plans with, will suck in all kinds of raw materials and will make China compete on price.

Iron ore’s already been on a tear this year. Copper’s up. Zinc’s at its highest level since the end of the last mining boom. And correspondingly, stocks held in warehouses tracked by the London Metal Exchange are down.

And it’s not just metals. This week Anglo Pacific’s (LON:APF) Julian Treger was talking about the likely positive effects on coal, as its use in US steel manufacturing ramps up again. Trump is in any case supportive of the coal industry, which probably swung Pennsylvania for him, amongst other states.

But if Trump thus far has been good for metals and mining in general, what about the more particular investment favourites, gold and precious metals?

Here the effect has been much more nuanced. Obama has fixed the economy as far as the top-line numbers are concerned, so the Fed can now put up rates. Trump will take the credit for the economic feel-good factor that’s coming, but he will have to make sure that inflation doesn’t price out of the market the workers that he’s hoping to employ in his new infrastructure projects.

The uncertainty around this forthcoming juggling act has helped gold back up above US$1,200 this week. Can he really deliver for his own constituency, let alone for all of America?

And what if he can’t?

Anyone who’s really bullish gold is probably banking on some kind of conflict erupting as Trump’s rhetoric gets out of control. President Obama trod a very subtle and understated path across the world stage. Trump is not likely to do that. Already US troops are massing in Poland.

If the US Pacific Fleet starts concentrating in the South China Sea, then a full blown commodity bull market may just erupt, as gold joins in the flood. 

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