Fear Not, the Solution Is under Our Feet

Around the year 800, the Tang dynasty in China had a problem. They were running out of cash.

When I say cash, I mean copper coins, the money at the time.

These coins were used by merchants to trade around the country, so the lack of availability was putting a damp on trade.

To tackle the shortage, merchants started using paper government certificates that merchants could redeem for metal coins at the capital.

These certificates had some advantages over copper coins. They didn’t need to carry a heavy load of coins everywhere, it was safer, and they could have different amounts of money on them.

So much so, merchants even stopped bothering going to the capital to redeem them and kept on using them as a medium of exchange instead.

The certificates were known as feiqian, or ‘flying money’, mainly because they could be used in faraway places…but also because they had a bad habit of flying away when it was windy.

Eventually, this ‘flying’ cash would replace the world’s ‘cash’ at the time (gold, silver, and copper coins). But that’s the thing with paper money, it has a tendency to disappear.

Not only is inflation eroding away the value of money, but bank failures are shaking the confidence in the system.

As investors continue to wrestle with the possibility of a banking crisis — along with the effects of the war in Ukraine and central banks continuing to raise rates — money has been flowing into real assets, like gold and silver.

Both gold and silver are up 10 and 11%, respectively, in the last month. But another metal has been notching higher too…

Dr Copper is doing well

Copper prices have continued to gain recently, as you can see below:

Copper is a material widely used in many sectors of the economy, such as electrical wiring. It’s so important, it’s even considered a barometer for the global economy’s health. That’s why it’s also referred to as Dr Copper.

Copper prices rose to more than US$10,000 a tonne last year but then collapsed on recession fears and central banks rising interest rates.

They jumped up again in December after China announced it was easing COVID restrictions, but Chinese demand has, so far, remained sluggish.

So it’s interesting that copper prices are rising, even when there’s so much doom and gloom around.

One of the reasons for the uptick in copper prices is a weakening US dollar.

Copper stocks are also very tight at the moment…and there’s been some instability in some of the major copper producers.

Protests across Peru, the second-largest producer in the world, have hit copper exports, which decreased by 25% in January.

We could see copper prices continue to tick up if Chinese demand wakes up later this year. As we all know, it takes a while to restart the economy after years of lockdowns.

But over the long term, copper is looking very interesting indeed.

At the moment, while strong copper prices are driving up investment in exploration, we haven’t had much to show for it.

As S&P Global Market Intelligence put it in a report recently:

‘While copper reserves and resources have increased by 50 million tonnes compared with our analysis last year, most of the increase came from assets discovered in the 1990s.’

Copper is crucial to the economy but also critical for the energy transition. If we want to electrify everything, we’re going to need plenty of copper.

S&P Global expects copper demand will double to about 50 million metric tonnes in 2035 from 25 million metric tonnes today.

So keep an eye out for Dr Copper!

Speaking of copper…

If you’re interested in mining stocks, my colleague James Cooper is releasing a presentation on his upcoming premium service.

As a former exploration geologist, his new service isn’t about investing in just any old mining stock. Instead, it focuses on the very small-cap end of the mining market, what James likes to refer to as ‘Phase One Miners’.

These are companies that are at the very early stage of exploration. Make no mistake, these can be very risky. But if their first drill hits it big, they could really pay off.

What’s more, James will be giving out the full name of a ‘Phase One Miner’ in his presentation, so you won’t want to miss this.

To secure your spot for James’s presentation next week, ‘Graduation Day’, click here.

Best,

Selva Freigedo,
Editor, Money Morning