Metals Still Battling Currency Headwinds The dominant theme for precious and base metals in June has been the dollar short squeeze. This month’s sizable rally in the U.S. dollar index (USD) put heavy selling pressure on most industrial and precious metals that are priced in dollars. Gold and silver pulled back around 7% during the dollar’s rally, while copper suffered a 13% decline and platinum led the way down with an 18% drop. At this point, however, most of the dollar short covering has likely been exhausted, and there was a pullback in USD last week. This was enough to give copper a minor relief rally, although gold and silver barely budged higher despite the dollar’s dip. 
Serving as a catalyst to the dollar short covering event was the recent policy statement from Federal Reserve Chairman Jerome Powell, who indicated that the central bank could begin tightening interest rates by 2023, if not in 2022. While this is still a long way off, investors were spooked by the inference that prevailing easy money conditions will eventually come to a halt. It was admittedly an emotional reaction to a distant event on the market’s part, but traders may also have been discounting an earlier-than-expected Fed tightening if inflation continues to increase in the coming months. Last week, currency analysts quoted by Reuters noted that “If the risk-off response to expected Fed tightening persists, Treasury yields and tightening views might soften temporarily, too, allowing a dollar pullback.” But what appears to be happening is that, far from going “risk-off,” market participants seem to be moving closer to embracing a “risk-on” approach once again, as evidenced by recent gains in growth-sensitive areas of the stock market. What’s more, the 10-year Treasury Yield Index (TNX) started showing strength again late last week after recent weakness as investors seemed to be betting on a stronger economic outlook. If the 10-year yield continues rising, it will mean added competition for non-yielding bullion and give investors one less reason to favor gold as a safe haven in the near term. Meanwhile, the leading industrial metals—particularly copper—are still in a position of short-term weakness. This can be seen in the graph of the Invesco DB Base Metals Fund (DBB), which has lately established a series of lower highs and lows and remains below its key 25-day and 50-day trend lines. 
While it’s always possible that the market is setting up for a classic “whipsaw” rally to confuse the metal bears, the fact remains that as long as the dollar index remains in a position of near-term strength, the safest course of action is to remain in a heavy cash position and avoid buying new long positions in the metals and mining stocks for now. Before we think about initiating new positions, we’ll need to see the dollar index show significant weakness by backing off levels and falling closer to its May low. Right now, the dollar’s residual strength is simply creating too many headwinds for the major metals. Concerning the gold mining stocks, we also need to see substantial internal improvement before we start buying them again. As of this writing, my favorite technical indicator for the mining stocks—the 4-week momentum of the new highs and lows for the 50 most actively traded gold stocks—still hasn’t reversed its decline to let us know that the internal weakness in the gold miners has ended. In fact, the indicator just entered into negative territory as of last Friday, June 25 (see chart below). On Friday, eight of the 50 most actively traded gold stocks made new lows against no new highs. As previously stated, these new lows shrink to zero while the rate of change (momentum) of the combined new highs and lows turns up. 
New Recommendations/ Updates Iron and steel stocks have shown relative strength during the recent correction in the broad metals market, with the NYSE American Steel Index down just 6% from its May peak. Last week also saw a technical bounce for iron ore and steel companies like Cleveland-Cliffs (CLF), one of North America’s largest integrated steel makers and a member of our metals portfolio. The stock found support at its 25-day trend line and was up as much as 10% on an intraweek basis. Iron ore prices were on the rise last week against a backdrop of higher demand at mills as well as supply tightness, which likely contributed to the rally (at least in part). Moreover, according to Fitch Solutions, “Iron ore and steel prices are once again rising higher … amid strong demand from the Chinese steel industry and supply issues from the largest global producers.” In the latest industry news, China Baowu Group, the world’s top steelmaker, said last week it would join forces with Vale (VALE)—one of the world’s largest iron ore and nickel miners, and Shandong Xinhai Technology to make stainless steel raw material nickel pig iron (NPI) in Indonesia (which likely accounted for the recent strength in Vale’s stock price, as well as residual strength in Cleveland-Cliffs). 
The most important reason for our continued holding of CLF is based on encouraging financial results in recent quarters, including adjusted EBITDA of $513 million in the first quarter, compared to $23 million in the year-ago quarter. Management also expects Q2 EBITDA of $1.2 billion, as higher prices and production volumes will allow the company to generate “record levels” of free cash flow and pay down a “substantial amount of debt.” After taking partial profit following its rally earlier this month, I recommended that investors raise the stop-loss on the remainder of the trading position to slightly under the 19.85 level on a closing basis (where the 50-day moving average comes into play). HOLD Earlier this month I recommended that we buy into the Global X Lithium & Battery Tech ETF (LIT) on weakness. This ETF is what I view as a nice fit with our somewhat related positions in the cobalt (via Wheaton Precious Metals) and neodymium-Praseodymium (via MP Materials) spaces. As the world moves toward “cleaner and greener” sources of energy, as well as the electrification of vehicles and alternative forms of energy storage, lithium will play an increasingly pivotal role. That’s the conclusion of a recent forecast report by data analytics firm Fitch Solutions. The lithium market is controlled by a relatively small number of producers, but Fitch foresees that more opportunities will open up and expand growth opportunities for new entrants around the world. Fitch predicts that global lithium production will more than triple, from 442,000 tons of lithium carbonate-equivalent (LCE) last year to 1.5 million tons by 2030. Driving the acceleration of alternative energy storage, according to Fitch, will be the growing demand for rechargeable lithium-ion batteries for the electric vehicle (EV) market, accounting for around 80% of total lithium demand by 2030, from 40% today. Lithium consumption could grow as much as seven times over the next 10 years, based on projected EV annual sales growth from 3 million units today to 21 million units by 2030. Benchmark lithium carbonate prices are currently near a three-year high of 90,000 yuan per ton, driven by rising global demand for EVs. Global supplies, meanwhile, remain tight. Lithium prices, moreover, are projected to rise significantly in the coming year based on industry analyst estimates. In view of the lithium market’s strong fundamental backdrop, investors who haven’t already done so can buy a conservative position in LIT on weakness down to around 66 (halfway between where the 25-day and 50-day moving average come into play). BUY A HALF ON WEAKNESS MP Materials (MP) is regarded as one of the biggest (if not the biggest) rare earths producers in the Western Hemisphere, currently accounting for around 15% of total global supply and with most of its production taking place at its Mountain Pass, California mining site. It’s also the only rare earth mining and processing facility in North America. Most of the resulting rare earth concentrates MP produces are eventually sold to China through an intermediary (where those concentrates are processed). However, the company is working towards completing a Stage II optimization project next year that would allow the firm to bypass the middleman by fully processing the materials and selling rare earths straight to end-users. Upon completion, Stage II is expected to produce around 20,000 metric tons of separated rare earth oxides annually, including over 6,000 metric tons per year of Neodymium-Praseodymium, which in turn will be used primarily to make magnets for the EV market, as well as for wind turbines, drones and robots. MP Materials also boasts a strong balance sheet, with cash and equivalents of $1.2 billion (including $672 million in net proceeds raised through a convertible “green bond” offering—the largest in the country, according to MP). Its liquidity position was further increased by $21 million in free cash flow during the quarter. Looking ahead, analysts expect the company to grow the full-year 2021 top and bottom lines by 77% and 93%, respectively, with continued double-digit earnings and revenue growth in the next two years. Moreover, the global rare earth elements market is expected to increase by around 12% annually through 2026. Assuming this forecast materializes, MP Materials is likely to experience strong growth for Nd and Pr to be used in EV motors. In the latest news, MP was just added to the Russell 3000 Index during its annual rebalancing, giving it some added visibility and prestige among investors. I previously instated a buy recommendation on MP and reiterate that investors can purchase a half position in the stock on weakness, using a level slightly under the pivotal 25 level as the initial stop-loss on a closing basis. I now suggest raising the stop to slightly under the 30 level on a closing basis (the nearest pivotal low after last week’s rally). BUY A HALF ON WEAKNESS Lithium investors with a speculative bent may want to take a closer look at Sigma Lithium Resources (SGMLF on the OTC, or SGMA on the Canadian TSX exchange). The company’s stated goal is to “enable EV industry growth by becoming one of the world’s largest, lowest cost producers of high-purity, environmentally sustainable lithium products” and it’s developing a world-class lithium hard rock deposit with exceptional mineralogy at its Grota do Cirilo property in Brazil. On June 2, the company announced “exceptional” preliminary economic assessment results that support doubling a planned production capacity to 440,000 tons per annum (66,000 in lithium carbonate equivalent). Phase 2 production highlights include “near-term production capacity of battery grade high-purity green lithium [that] will be potentially doubled.” Financial highlights of the property include “the potential to more than double total NPV of the Project to US$844 million.” Located close to Atlantic emerging supply chain for electric vehicles in North America and Europe, Phase 2 would enable Sigma to continue to be among the lowest cost producers in the industry, according to the company’s latest statement. Speculators interested in initiating a conservative position in SGMA can use weakness to nibble down to around the 5.50 level (stop) in the TSX symbol and down to around 4.50 (stop) in the OTC symbol. (Note: Unlike most recommendations made in this report, this is a fairly illiquid stock.) BUY A HALF ON WEAKNESS 
We recently initiated coverage of Taseko Mines (TGB), which I view as an ideal vehicle for gaining some exposure to the strong molybdenum market. Canada-based Taseko is known mainly for being a mid-tier copper miner that operates the Gibraltar Mine, Canada’s second largest open-pit copper mine. Taseko’s Gibraltar mine boasts proven reserves of 53 million pounds of molybdenum. (On the news front, the company was recently granted a permit that will allow it to continue its 2021 mining plan at Gibraltar without disruption.) Total molybdenum production for the company in the first quarter of 2021, meanwhile, was 530,000 pounds, up 29% from a year ago. Taseko reported that molybdenum prices strengthened in Q1 and averaged $11.32 per pound (26% higher sequentially). Analysts expect sales and earnings to improve moving further into this year, in part due to improving copper conditions (management also said it expects higher EBITDA this year). In view of the supply shortages and increased industrial demand for steel (of which molybdenum is a key component to increase hardness, electrical conductivity and corrosion resistance), Taseko is a solid story. Long-term-oriented investors can accordingly do some nibbling on pullbacks down to around 1.90 (stop). BUY A HALF ON WEAKNESS Wheaton Precious Metals (WPM) is a world-class precious metal streaming company, featuring a high-quality portfolio of long-life, low-cost assets. (Streaming companies make an upfront payment, plus a fixed payment per ounce of metal—often 20% of spot price—giving them the right to a percentage of a mine’s future production and allowing them to leverage rising metal prices.) As the world’s largest silver streaming company, with 14 silver purchase agreements, as well as gold and palladium agreements, Wheaton focuses mainly on high-quality, high-margin operations with a goal of returning a minimum of 30% of cash flow to its shareholders, with the remainder used to grow the company. Aside from precious metals, one of the main drivers behind Wheaton’s stock price right now is the company’s growing exposure to the valuable cobalt market (cobalt prices are up 45% from a year ago). Last year, Wheaton closed a cobalt streaming agreement for the Vale owned Voisey’s Bay Mine for $390 million and will make ongoing payments of 18% of the cobalt spot price per cobalt pound delivered until the delivery of 31 million pounds of cobalt and 21.2% of cobalt production thereafter for the life of mine. (Wheaton recently reported the first production of cobalt from the Voisey’s Bay mine.) With gold, silver and cobalt prices on the upswing, Wheaton should benefit from the accelerating growth in demand. Investors can nibble on weakness down to around 42.50. BUY A HALF ON WEAKNESS Portfolio
| Stock | Price Bought | Date Bought | Price on 6/29/21 | Profit | Rating |
| Cleveland-Cliffs (CLF) | 20 | 5/11/21 | 21 | 6% | Hold |
| Global X Lithium & Battery ETF (LIT) | 69 | 6/10/21 | 72 | 4% | Buy a Half |
| MP Materials (MP) | 32 | 6/8/21 | 36 | 13% | Buy a Half |
| Sigma Lithium Resources (SGMLF) | New | - | - | - | Buy a Half |
| Taseko Mines (TGB) | 2.25 | 5/24/21 | 2.03 | -10% | Buy a Half |
| Wheaton Precious Metals (WPM) | 48 | 6/2/21 | 44 | -9% | Buy a Half |
Sell a Quarter/Half means take partial profits, either 25% or 50%.Buy means purchase a position at or around current prices. Buy a Quarter/Half means allocate less of your portfolio to a position than you normally would (due to risk factors). Hold means maintain existing position; don’t add to it by buying more, but don’t sell. Sell means to liquidate the entire (or remaining) position.