Is the blood letting over tor ASX resources?

Today’s ASX session had a bit of everything.

The ASX 200 sank to a two-week low in the morning, then clawed its way back by early afternoon.

In boxing terms, the market got dropped in the first round and finished the fight on its feet.

Tech did some of the heavy lifting, with investors piling back into chipmakers across Asia after the panic selling sparked by Moonshot’s Kimi K3 model.

ASX tech companies did reasonably well in light of recent events.

But the move that caught my eye was in the miners.

Gold climbed almost 1% to US$4044, and investors rushed to buy the dip in the producers.

The big boys like Evolution and others put together decent gains.

Helping things along, Brent crude eased 0.7% to US$88.64, even with Houthi rebels threatening to blockade a Red Sea export route.

Rising oil prices had been pushing interest rate expectations higher, and that pressure had been weighing on gold.

Oil cools off, rate fears ease, and the gold miners get bought.

Simple enough.

Why the dip-buying matters

All this suggests a floor could be forming under ASX resource companies.

And I think there’s a solid fundamental reason for that floor to hold.

Here it is: the only way inflation comes down in a sustained way, anywhere in the world, is by digging stuff out of the ground.

Central banks can raise rates all they like. They cannot print a barrel of oil, an ounce of gold or a tonne of copper.

Inflation is too much money chasing too few goods.

The lasting fix is more goods, and most goods start life as a rock, a liquid or a gas pulled out of the earth.

That’s where higher commodity prices come in.

High prices are the market’s way of begging producers to invest. Every extra dollar on the gold price or the copper price makes new mines, rigs and processing plants stack up on paper.

That capital expenditure, the money companies spend on new projects and equipment, takes years to turn into fresh supply.

In the meantime? The companies already digging enjoy fat margins.

Then there’s China

China’s economy has been limping along, and Beijing has a long track record of reaching for stimulus when growth stalls.

I think it may be forced to pull that lever in the near future.

When China stimulates, it builds. And when China builds, it buys iron ore, copper and just about everything else the ASX resources sector sells.

Put it all together. Dip-buyers stepping in, a structural case for commodities as the world’s inflation cure, and a likely Chinese stimulus push.

That’s a decent setup for ASX resource companies to bounce back over the next month.

Keep your eyes on the miners.

It might not be scintillating, but hopefully the bleeding stops.