The re-election of Donald Trump has thrown the metals markets into a state of flux, much like a shaken snow globe – chaotic and swirling. While some metals might face a bumpy ride ahead, JPMorgan’s Commodities Research team, led by Greg Shearer, believes gold will remain a beacon of strength amidst the turbulence, describing recent gold action as a ‘stumble, not a sea change.’ Let’s delve into JPMorgan’s breakdown of what to expect in the metals market as this political shift unfolds.
Base Metals: Timing and Sequencing Are Key
With escalating tariff tensions, JPMorgan’s team emphasizes that the ‘timing and sequencing’ of policy decisions will be crucial for base metals. They anticipate China’s response will be more ‘reactive’ once tariffs are implemented, as opposed to proactive measures. This suggests that the market may start incorporating ‘risk premia’ in the coming weeks, leading to potential near-term volatility for base metals. Investors in base metal ETFs such as the United States Copper Index Fund (CPER) and the Invesco DB Base Metals Fund (DBB) should exercise caution.
However, one metal, aluminum, could buck the trend. Due to persistent supply issues in the bauxite market, aluminum boasts ‘idiosyncratic fundamental support,’ potentially mitigating bearish pressures from a weaker Chinese Yuan (CNY). While other base metals might take a temporary step back, aluminum could hold its ground.
Gold: The ‘Debasement Trade’ Shines Bright
Following the election, gold experienced a dip, but JPMorgan views this as a temporary setback rather than a major shift. With potential US fiscal challenges and rising inflation concerns on the horizon, the team projects robust performance for gold in the years to come, potentially reaching $2,850 per ounce by late 2025. This ‘debasement trade,’ which favors gold as a hedge against inflationary pressures and government policy uncertainty, could make gold the go-to asset as the new administration’s policies take shape. Investors in the SPDR Gold Shares ETF (GLD) and the iShares Gold Trust (IAU) could be well-positioned to benefit.
The Yuan Factor: Copper’s Achilles’ Heel?
The yuan’s (CNY) trajectory is another critical factor to watch. If Trump’s policies lead to further yuan depreciation, potentially reaching 7.40 or even 7.8, as per JPMorgan’s FX strategists, copper prices could take a hit, dropping by roughly 5% to around $9,000 per metric ton. While aluminum could remain relatively resilient due to its supply constraints, other base metals might feel the squeeze.
Gold Glistens While Base Metals Hold Their Breath
Trump’s second term presents a mixed bag for the metals market, with both headwinds and golden opportunities. While base metals may see some strategic waiting time, aluminum could be one of the few metals to weather the early storm. On the other hand, gold has its sights set on the long game, fueled by JPMorgan’s ‘debasement trade,’ which paints a bullish outlook for the precious metal. Investors seeking safe haven and potential long-term gains should keep a close eye on gold’s performance in the coming months.
