John Forwood thinks we are entering an ‘almost everything rally’

Those were innocent days as the initial fear over the Covid outbreak washed away, governments pumped obscene levels of stimulus into their economies (inflation be damned) and metals such as copper, nickel, zinc, aluminium and iron ore rummaged their way to record highs.

Reality set in as China’s helium balloon economy was popped in the stratosphere, Russia invaded Ukraine, reserve banks hit the big red rate hike panic button and technological advancements put battery metals in the doghouse.

We started to see the pessimism fade late last year as gold prices responded to the end of the inflation peak and rising geopolitical tensions with a rally to all-time highs, and early this year as supply shortages prompted an earlier than forecast bull run for copper.

Oh, and decades of under-investment merged with suddenly friendly government policy towards nuclear power to make uranium a commodity to watch.

Lowell Resources Fund (ASX:LRT) CIO John Forwood, whose fund prospered largely due to backing Azure Minerals (ASX:AZS) through last year’s junior lithium boom, thinks we may now be in the early stages of an “almost everything rally”.

“There’s gold, copper, uranium, but when you look across the board there’s so many metals – and oil and gas – which are up since the start of the year,” he said.

“That’s interesting particularly in light of the strong US dollar. Normally gold, in particular, performs better when the US dollar is weaker.

“It’s got people scratching their heads as to why this is occurring.

“The two best performing commodities this year amongst what I’ve been looking at are silver, up 17 per cent against gold which is up 13 per cent, and tin which is up 27 per cent compared to say copper, which is up just under 10 per cent.

“Even things like oil, which is the biggest market of all, is up nearly 20 per cent this year, but other things that have been hammered – like lithium, nickel, rare earths – have bounced back. “Even iron ore has bounced back.

“It’s really interesting to see that. While all these different metals or commodities have different dynamics, you’ve seen them moving almost in sync now.”

Is uptick in the cycle here?

It took around six years from the bottom of the last bust in 2015-2016 to hit a crest in 2021-2022. Could the market be turning faster this time around?

It’s a little early to say, says Forwood as he notes that gold’s strong run, for instance, could be sustained or could eventually be weighed down by the gravity of the “higher for longer” US interest rates bullion has been defying.

Notably, strong US jobs data that came out recently was batted off by seemingly impervious commodity markets like Mario with a star in his stomach, despite suggesting interest rate cuts are further away than the market has hoped.

But Forwood is glass half-full right now.

“There’s a lot of strength in the gold market and we’re seeing continued transfer of ownership of gold from the West to the East. It’s interesting to look at the ETFs,” he said.

“Gold ETFs in the US have been net sellers of gold, whereas in China there’s a gold ETF which is trading at a reported 30 per cent premium to its underlying net asset value.

“So the Chinese retail investors have been piling into gold, and I think that’s one of the big reasons. It’s not just the central banks behind the strength in the gold price”

That is a gold specific example, but it touched on a phenomenon being seen more broadly across the metals landscape.

Institutional investors and traders are ditching their shorts and going net long on commodities at rates not seen in a long time.

“When you look at the commitment of traders, which is data out of the Commodity Futures Trading Commission in the US, they’re hitting multi-year high net long positions across a number of commodities,” Forwood said.

“Last month Brent oil hit a net long position which was its highest since October ‘21, gold highest since July ‘20, silver a two-year high, copper highest since October ‘21.

“My interpretation is this could be a bit of a rotation by investment houses looking to say, ‘OK we’ve had a fantastic run in equities, we’ve done really well out of AI and fintech and the Magnificent Seven. Maybe we should be looking to generate returns elsewhere, maybe that run in equities is running out of steam and we should be looking at hard assets’.

“And perhaps there are some generalist investors putting money back into commodities.

“Certainly in the last few years we’ve heard the opposite.”

That could mean upside in resource equities, whose movements in the past year have substantially trailed commodity prices.

Historically the rise in equities tends to be 2-3x a lift in the underlying commodity price.

“Investment seems to be going into the metals or commodities themselves as a preference to the equities and that’s a theme that we’ve seen over a number of months,” Forwood said.

“Obviously the equities have moved. The GDXJ (on the day of interview) is up 10 per cent YTD. But you would have expected that index to move more and hopefully that means there’s more upside in the equities and perhaps there’s a slingshot effect – touch wood.”

Gold and copper have stolen the headlines in recent months, but it is the aforementioned minor markets of tin and silver where John Forwood has cast his gaze in April.

Silver was, on Monday morning, paying $US28.50/oz, having hit a decade high of $US29.03/oz on April 12.

“Silver usage is different to gold. About 40-50 per cent is industrial usage as opposed to investment demand,” Forwood said.

“There’s certainly growing use of silver in PV cells – solar panels use a lot of silver and the growth in that market has been exponential. EV chargers also use a lot of silver so there’s growing industrial demand for silver.”

Currently the price appears to be investment driven, given it has been in lock-step with gold.

But there are only a handful of places on the ASX to find primary silver exposure, Forwood noted.

The largest operation in Australia, for instance, South32’s (ASX:S32) Cannington mine, is a smaller portion of a large diversified portfolio of assets.

“We like Mithril Resources (ASX:MTH) for silver,” Forwood said.

“It’s got a project in Mexico, which is the world’s largest silver producer, and I think Mithril is the only ASX company active in Mexico.

“MTH is sitting on half a million ounces in gold equivalent (at Copalquin), basically 140g/t silver and 4.8g/t gold.”

Minnow Mithril is planning a consolidation to improve the liquidity of its stock.

Forwood also likes the fact that MD John Skeet was a key figure in Bolnisi Gold, which cultivated the Palmarejo silver and gold mine in Mexico ahead of a $1.4 billion takeover by Coeur Mining.

The mine is now the New York listed miner’s largest contributor, accounting for 64 per cent of its silver and 32 per cent of its gold production in 2023.

“The MD John Skeet was GM at Palmarejo and really knows his way around Mexico. So the management gets a tick. MTH is very cheap, and great exposure to silver,” Forwood said.

Forwood also likes the look of $43 million capped Unico Silver (ASX:USL), which boasts 92Moz of silver equivalent resources at Cerro Leon, up the road from AngloGold Ashanti’s 9Moz gold and 137oz silver Cerro Vanguardia mine.

“In that equivalence there is a reasonable amount of zinc and a bit of gold as well,” Forwood said.

“They’re in Santa Cruz province in Argentina, just 30-odd km from Anglo’s high-grade epithermal Cerro Vanguardia gold mine, so it is a province where you can develop mining assets.”

Forwood said tin, largely represented on the ASX through Metals X (ASX:MLX), which has a 50 per cent stake in Tasmania’s world-class Renison Bell tin mine, was also a commodity to watch.

At around $US35,600/t on the LME (on Monday morning), three-month tin contract prices have risen more than 30 per cent this year so far.

“Probably our main exposure would be Flynn Gold (ASX:FG1) which is mainly focused on gold in Tasmania, but it does have the Laffer tin project in northeast Tassie,” Forwood said.

“Tassie’s the place to be if you want to chase tin in Australia given that it’s home to the Renison operation. Laffer is getting grab samples of over 3 per cent tin as cassiterite, so that’s really good grade.

“If you take a 3:1 copper equivalence just based on price then that’s like 9 per cent copper grab samples, which is pretty nice.

“But it’s early days – that project hasn’t been drilled and Flynn is focusing on its gold. But I guess they might consider putting a bit of money towards the tin with the price running so strongly.”