Iron Ore Defies the Bears as a Punter’s Paradise is Coming to Australia

Iron Ore Defies the Bears as a Punter’s Paradise is Coming to Australia

Man, check out that iron ore price…

It’s now hit its highest price since April.

It’s trading just under US$78 a tonne. Who picked that happening this year? Certainly not me.

Iron ore is now up 46% since its June low. And apparently this time of year is normally weak due to seasonal Chinese buying patterns.

It’s party time for Australian iron ore companies (and the government) for as long as it lasts.

It certainly might put a further glow on BHP’s [ASX: BHP] full year results due tomorrow.

The Australian Financial Review says the company’s profit will be up over six times on last year and the dividend up threefold.

Anything like that will look majorly bullish for the resource sector as a whole.

And this is something I HAVE picked. We’ll see. If I’m right we’re entering a punter’s paradise here in Australia.

Let’s delve in a little deeper…

BHP splashes the cash — and
drops a big clue

A strong mining sector is what the Aussie index needs to get a big lift. And I think this exactly what we will get. Mining is going into a much more positive period over the coming years.

BHP actually has given us a little clue that it thinks the same too…

Last week management signed off on US$2.46 billion expansion for its Spence copper mine in Chile.

It’s no secret that the miners, especially BHP, have been pretty stingy on financing new projects in recent years. But we have a clear signal here that BHP sees strong copper demand in the future. And they’re backing this call with big money.

This kind of capital spending supports a lot of smaller companies and creates jobs. So this is extremely compelling to see.

In fact, the evidence keeps piling up. We got another clue of a mining comeback last week too…

The Australian Bureau of Statistics reported its latest figures. Half of the jobs growth this year has come from the mining states of Queensland and Western Australia.

Australia’s employment figures, like those in the US and the UK, are close to or have exceeded the best historical figures. Strangely, this doesn’t stop people stressing out about a possible collapse coming.

I don’t blame them. Markets are always worrying about something. And it IS stressful risking your money. You worked hard for it, and nothing about investing comes easy.

Still, I see many positive signs for Australia and the world.

But where to put your money?

Well, commodities as a sector have the potential to really rise from here.

A colleague of mine in the USA is called Steve Sjuggerud. I like his stuff. In a recent note he pointed out to me that commodites haven’t been this cheap compared to US stocks in history.

Nobody cares about the ‘hard asset’ trade anymore…

This makes me even more excited.

The time to get interested is
when nobody cares

You need to have been around for a bit to find this notable. For ages, buying ‘hard assets’ was a meme or strategy that was a big part of investment commentary.

That’s because central banks were printing money and bonds were considered a toxic asset about to be slaughtered from inflation.

Except it never happened!

Commodities went down and bonds went up. The markets never do what seems obvious.

For example, everyone used to hang off the word of retired hedge fund guru Jim Rogers, who set up a commodities index in 1998 and it made staggering gains until 2007.

Jim doesn’t think the big bull market in commodities is over. He thinks commodities will rise again in a big way.

I agree with him on that point. The problem with Jim’s thesis is that he’s been saying it for so long people have stopped listening.

This makes me think we could be setting up for a reversal here. Bonds over the next decade could prove to be total duds. Commodites will be one place to find some big action.

It’s possible — perhaps if we get a jump in inflation — bond markets could really take a hit. Any big panic and money could pour out of bonds. It might go looking for a home into cheap commodities.

That’s something to consider…but not to act on immediately. We’ll keep monitoring the situation and keep you ahead of how it plays out.

But this is partly why I think the Aussie index could be in for a big rise…and some fun and profitable times to be had if you’re happy to speculate in the lower end of the market.

Small cap miners can really fly. And there’s nothing like a hot mining sector to get the average punter into the market.

I’m already seeing very positive signs for mining from one of my plays on this theme in my newsletter Small Cap Alpha. We’re up 15% on this so far since we launched in the first week of August.

In fact, management released an announcement today saying they’re seeing increased actvity in all major mining regions globally and the ‘early stages of mineral industry cyclical upswing’.

It could be the beginning of something really exciting for this sector.

A punter’s paradise indeed!

Go here to see why.


Callum Newman
Editor, The Daily Reckoning Australia