While 2017 may only be a month old, there has been a lot happened since the New Year. Regardless of where you stand politically, the election of Donald Trump is going to impact mining stocks, one way or the other. President Trump has made a number of promises, and the early days of his presidency indicate that he will be aggressive in implementing many of those policies.
There are plans to significantly reduce corporate income taxes in the United States, which could potentially promote a huge wave of capital investment. Trump also made infrastructure spending a campaign platform, with plans to invest the $1 trillion needed over the next 10 years, to ensure the US maintains manufacturing jobs (his isn’t even discussing the demand for materials that would be generated from building a 40-foot concrete wall that spans over 1,900 miles of terrain along the US – Mexico Border).
These policies would appear to be good news for the mining sector and indicate that there will be a push for both increased metal production, and the need for additional supply.
The question is whether President Trump and his team will be successful in their rather ambitious plans, or will it end in disaster? There are many prognosticators on both sides of the fence (no pun intended) predicting either prosperity or armageddon; we prefer to stay right out of that particular debate. Instead, we’ll focus on which mining sectors investors need to look for potential value opportunities in 2017.
The outlook for gold in 2017 looks to be strong. Gold is a safe-haven investment which has a historical record as a hedge against inflation and during periods of instability. This year there are two primary reasons behind our bullish outlook for gold (and for other precious metals);
- the probability of inflationary forces in the U.S. and,
- the wave of global political and economic uncertainty.
One thing made clear by President Trump is that he plans to ‘put America first.’ It was the mandate he was elected upon and he has shown he plans to follow through. While that would appear to be a noble goal, it is also apparent that he will set the US on a course towards protectionism, and though a protectionist environment may not be bad for an economy in the short term, it is likely going to be inflationary over the mid- to long-term.
Combine that with plans to introduce a $550 billion fiscal stimulus plan (as part of the promised $1 trillion in infrastructure spending), and you have a recipe for inflation. The key here is to keep in mind that while this may still prove to be beneficial to the productive capacity of the US economy, it’s hard to ignore its inflationary pressure and its impact on the US dollar.
In this environment, gold and more specifically, gold stocks are poised to perform well in 2017. For a more detailed discussion, we discuss the Outlook for Gold Stocks in 2017 here.
If you’re looking for a List of Gold Stocks, check it out here. We have included data on over 200 listed gold-mining companies.
Like gold, we are bullish on silver stocks for similar reasons. While silver does have some industrial applications (far more than gold), it’s more it’s hedge value against inflation that interests us in 2017.
A key difference between silver and gold is price volatility. Swings in the price of silver can be dramatic, and this can carry over into silver stocks. So far in 2017, we have seen a number of economic and political events that have influenced the price of precious metals. With big swings up and down, silver presents a unique opportunity for investors to capitalize.
We suggest that investors take a look at silver stocks (here is a list of publicly-traded silver stocks), and review why investors should consider and investment in silver.
If you want to know what is going to happen in the base metals sector, then keep an eye on copper; it’s a great indicator. While we have focused our attention on the U.S and its new president, the copper market is predominantly influenced by China, which accounts for approximately 45% of global demand for copper. Any competent outlook must take into account changes in Chinese demand.
With that said, infrastructure spending in the United States, as well as a reduced corporate tax rate, could awake the sleeping giant. New mine supply hit the market in 2016, but despite the additional supply the price of copper has been moving up steadily since September. As we can see below, copper prices moved up steadily towards the end of 2016.
But if you take into account where the market currently sits, and its five-year record, there is a strong case to be made that copper has a lot of room to improve.
We expect the trend to continue throughout 2017, as demand in traditional markets grows and outpaces any new supply. The impact on copper stocks should create a favorable environment for both producers and exploration. Our bias is towards politically stable regions, with advanced infrastructure.
We have compiled a list of copper stocks for you to use as part of your own due diligence.