Resetting the outlook on mining stocks, as commodities wrap up a volatile month
Subscribers to Chart of the Week received this commentary on Sunday, May 26.
On Thursday, investors were marked safe from a Nvidia (NVDA)-driven broad market selloff.. for all of four hours. But by 1:00 p.m. ET, even NVDA’s 10% post-earnings pop wasn’t enough to prop up the Nasdaq-100 (NDX), which had joined the Dow and S&P 500 deep in the red. Equities selling off in the face of Nvidia’s blockbuster report was a jarring reminder of the stock market’s lack of breadth.
The hawkish commentary from the most recent Fed meeting minutes, sprinkled in with the general market malaise to end the week, thrusts safe-haven assets and precious metals into the spotlight. Silver prices are in the midst of their best month since March 2023, and on Monday the most-active contract hit its highest level since 2013, all while gold prices nabbed a record high of its own on Monday. Never one to be left out, copper prices scored their fifth record settlement last week.
But we’re not here to speculate on safe-haven assets themselves. Instead, we wanted to see what opportunities recent precious metal price action has created for contrarian options traders. For the sake of brevity, we’ll pick one mining stock each from the gold, silver, and copper sectors.
Prior to the release of the Fed minutes, gold miner Newmont Corporation (NYSE:NEM) was trading above $44 for the first time since July. But despite adding 50% off its Feb. 28 lows of $29.42, the shares ceded their year-to-date breakeven level later in the week. The call disparity is stark; NEM’s 10-day call/put volume ratio at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) of 9.04 stands higher than 9081 of readings in its annual range. So not only do calls outflank puts by a more than nine-to-one ratio, but the high percentile indicates that such a call skew is rare for the last 12 months. Echoing the bullish sentiment on the analyst front, Scotia Bank hiked its price target to $48 from $46.50.
The analyst in coverage also doled out a price-target hike to silver miner First Domestic Silver Corp (NYSE:AG) to $6.50 from $5.50. AG is heading for a double-digit pullback this week, after crossing the $8 level on Monday. The stock boasts a similar call skew, with a 10-day call/put volume ratio of 15.35 on the ISE, CBOE, and PHLX that sits in the elevated 75th percentile of its annual range.
Copper is the most interesting metal of them all. “Copper is the new oil” reads the headline from Fortune Magazine last week, due to the hyper-conductive commodity’s integral role in wiring for artificial intelligence (AI) data centers. Like its gold and silver counterparts, copper suffered a late-week selloff amid profit-taking and demand issues in China. But if you believe in the future, you believe in copper. “Demand for copper for wind turbines, solar panels, electric vehicles, nuclear power plants, grid upgrades, battery production and power-hungry AI data centers continues to move higher,” said Robert Minter, director of ETF investment strategy at abrdn.
Freeport-McMoRan Inc (NYSE:FCX) is the blue-chip name to watch, up 22% in 2024 and chart support at its upward-curling 30-day moving average. FCX’s call/put volume ratio sits at a more modest 2.96 on the ISE, CBOE, and PHLX, but still underscores the preference for bullish bets.
While mining stocks NEM, AG, and FCX are all outperformers in 2024 as their respective metals shine, the cat is out of the bag, from a contrarian’s perspective. There’s not a single “sell” rating among those three equities in the analyst community, and of the those three, not one has a total available float sold short of higher than 7%. Despite the late-week pullbacks wrought from profit-taking, if you believe in safe-haven assets or are wary of broad market volatility hampering gains, mining stocks might offer the stability you seek.