Amy Gower 0.8 11 ideas

The Middle East conflict has caused significant physical disruption to aluminum supply, with the region representing 9% of global production. It takes about 12 months to fix production, leading to a tight market. This disruption, combined with power supply challenges and strong demand from stockpiling themes, should support aluminum prices well above cost.

Gold demand is supported by stable central bank buying, which provides a floor. While ETF buying is more rate-dependent and has been selling recently, the fundamental support from official sector purchases remains. The reconnection with real yields may limit near-term upside, but the backdrop is supportive.

Speaker stated that ETF demand for gold is sensitive to Fed actions, with ETFs flipping between buying and selling; central bank buying has slowed, and Turkey sold 60 tons. Near-term pressures from Fed rate hike expectations and dollar strength contrast with long-term real asset narrative, creating a balanced but uncertain outlook. WATCH due to conflicting short-term headwinds and long-term supportive factors, requiring monitoring of Fed policy and central bank activity. Fed turning more dovish or central bank buying resuming strongly could boost gold; conversely, aggressive hikes or sustained selling could pressure it further.

Speaker noted aluminum initially rallied due to Middle East supply disruptions (9% of production), but growth worries are now causing a pullback, though it still outperforms other base metals. Supply risks from regional export disruptions and raw material dependencies are balanced against demand concerns, leading to volatile price action. WATCH as aluminum faces push-pull factors between supply constraints and macroeconomic growth fears, requiring close observation of both geophysical and demand data. Resolution of Middle East conflicts easing supply, or a significant global growth slowdown reducing demand.

Speaker observed copper inventories in China pulling back faster than normal and physical premiums jumping, indicating potential dip-buying. Strong physical demand signals in China suggest underlying support, but broader economic conditions could influence future trends. WATCH for sustained demand indicators in China and global growth impacts, as current data points to resilience but is not conclusive. Broader economic slowdown in China or other key markets undermining demand.

Gold has fallen ~17% since the Iran war began, contrary to its typical safe-haven role. This is attributed to its liquidity (sold to raise cash), a stronger dollar, and a shift in Fed pricing from rate cuts to potential hikes. The current shock has inflationary implications that may force central banks to hold or hike rates, which is negative for non-yielding gold. Technical selling has also occurred. The traditional "real asset" and safe-haven narrative for gold is being overwhelmed by monetary policy and liquidity dynamics in the short term, leading to weak performance. A severe escalation that triggers a flight to safety overwhelming rate concerns, or a rapid pivot back to Fed easing expectations.

Approximately 9% of global aluminum production is in the Middle East, and exports are currently blocked from leaving via the Strait of Hormuz. The region is also dependent on imports of bauxite and alumina. This creates a direct regional supply risk and has supported aluminum prices and regional premiums, though growth concerns are a countervailing force. Aluminum is outperforming the base metals complex due to this specific supply disruption risk, making it a metal to monitor closely. The Strait of Hormuz reopens quickly, or a significant global demand slowdown outweighs the supply risk.

Gold and Silver are advancing on trade policy uncertainty. Copper pullbacks are viewed as limited due to "scarcity of resources" and data center demand. The macro environment (policy chaos) supports safe havens (Gold/Silver). Simultaneously, the structural build-out of AI infrastructure (Data Centers) provides a physical floor for Copper demand, regardless of the trade noise. Long Precious Metals and Copper. A sudden resolution to trade tensions or a stronger USD could depress metal prices.

Morgan Stanley is cautious on Iron Ore due to expected falls in Chinese output. For Lithium, they see prices having "overshot" and note a significant supply response (producers restarting). Unlike Copper (scarcity), Lithium is suffering from a "supply response" where higher prices immediately trigger more production, capping upside. Iron Ore lacks the AI/Data Center secular tailwind. Avoid or Short Iron Ore and Lithium exposure. Unexpected stimulus from China targeting heavy infrastructure could spike Iron Ore.