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| Brought to you by The Oxford Club | Wednesday, July 27, 2016 |
This Is No Ordinary Rally...
 Silver is the best-performing metal this year. It's up about 47%. So what's No. 2? I'll give you a hint... it's not gold.
The answer will surprise you... and can make you a pile of money with the right investments.
The answer is zinc.
Zinc is up 36% since hitting a low early this year. That kind of move in an industrial metal is stunning. Zinc recently hit $1 a pound for the first time since mid-2015. A pullback and consolidation here wouldn't surprise me. But the big trend remains up.
So why is the metal taking off like a rocket?
Zinc is in deficit, with more demand than supply from mines. However, that has been the case since at least 2012. Credit Suisse says that previously hidden inventories of zinc were released when prices rose. That took the air out of previous rallies.
Now it appears those hidden inventories may be scraping bottom. Last year, large zinc mines closed in Ireland and Australia.
Meanwhile, demand for zinc is rising. It is vital for many industrial applications - specifically to make protective coatings for steel. This year, zinc demand is expected to exceed supply by 352,000 metric tons. Some analysts think the supply-demand gap could be even bigger. TD Securities recently said that the supply shortfall this year was likely closer to 400,000 metric tons. Next year, the gap could be 500,000 metric tons.
What does that mean for prices? Some analysts expect zinc to rise another 14% in the next six months. To put that in context, it would be like gold rising to $1,515 - or higher!
But what if this isn't an ordinary rally? What if we're in a new bull market for commodities?
That's what I think. We're seeing strong rallies in energy, agriculture and metal commodities of all sorts.
Metals are leading this new bull.
Now let's add in the fact that the world's central banks are pumping free money into the global financial system. That can light the fuse on a speculative frenzy.
At $1, zinc is still only half the value it reached at its peak in 2007. This rocket could have a lot further to fly.
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How You Can Play It
There are two easy ways for U.S. investors to play zinc.
First, you could buy the PowerShares DB Base Metals Fund (NYSE: DBB). This fund is fairly liquid, with an average volume of 261,000 shares per day. Its expense ratio is 0.75%.
PowerShares tracks a basket of base metals: copper, aluminum and zinc. It has a base weighting split evenly between the three metals. But since zinc is red-hot, it now makes up 38.69% of the fund by value.
The good news is copper and aluminum are also rallying. That's more evidence of the commodity rally led by metals.
There is another fund that holds these three metals: iPath Bloomberg Industrial Metals Subindex Total Return ETN (NYSE: JJM). But that fund adds a fourth metal to the mix: nickel. So the weighting of zinc is lower than it is in PowerShares. The iPath fund is also very low volume.
The other investment to consider to ride the zinc rocket is a miner. I'm talking about Canada's Teck Resources (NYSE: TCK). It has a market cap of $8.3 billion and just broke out to a 52-week high. Shares of Teck bottomed with metal prices at the start of the year. During the hard times, Teck worked hard to cut costs and rightsize its business. And in the past two quarters, Teck has beaten earnings estimates handily.
Teck earned $0.33 a share last year. Wall Street expects the company to earn just $0.32 a share this year. I think Wall Street has it wrong - and Teck will continue to surprise to the upside.
Teck mines all sorts of things: coking coal (used to make steel), copper, lead and zinc. But zinc accounts for 31% of Teck's gross profit.
Teck produced 658,000 metric tons of zinc in concentrate in 2015. It mines the metal at its Red Dog Mine in Alaska and Pend Oreille in Washington state.
And Teck is moving forward with an oil sands project. With oil prices off their lows, that looks like a winner, too.
In other words, zinc is only part of Teck's business. But it is an important part of the business. Teck will give you excellent exposure to a further rally in the price of this metal.
Good investing,
Sean How to Make a Nearly Effortless Retirement Fortune
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