Yesterday was a bad day for the ASX, with it taking a 1% hit.
Likewise, it was a big win for mining stocks with a large group of mining stocks making up the winners.
Among them were Jupiter Mines up 4.8%, Aurelia Metals up 4.5%, Xanadu Mines up 4.2% and Danakali Limited up 5.3%.
A lot is at play in these movements, so let’s take a moment to unpack it all.
Firstly, commodity prices have eased as the US pulled out of Iraq and drew down its presence in Afghanistan.
Miners produce commodities which are raw materials like iron ore, coal, copper etc.
Commodity prices react to war
As you can see below, there is a strong connection between war and commodity prices.
War creates tension and fear, which drives prices higher.
Not that we are heading for a major war at the moment, but we do have a trade war brewing between the US and China.
We also have the prospects of sanctions against Iran which is driving oil (another commodity) prices higher.
Recently, tension has erupted between the US and Saudi Arabia over the disappearance of a Saudi journalist at the Saudi Arabian embassy in Turkey.
All of this points to war-like conditions for the market, even without there being all-out war.
War-like conditions good for mining stocks
Below, you can see the CRB Commodities Index with notes:
Going back to mining stocks, it is possible to look forward to a few things which may explain their resilience in difficult markets.
As covered before, China may be considering a stimulus package on the scale of the one it launched at the height of the GFC.
This would spur demand for iron ore from Australia.
It is also worth considering that the US may outlay up to a $1 trillion dollars on infrastructure, should the democrats come to power.
This would require a lot of steel, and drive up the price of iron ore again.
Combined with the geopolitical tension that we outlined before, you a have a good set of explanations for why mining stocks stand up when the markets fall.
So if you think markets are in for a tough time, it could be wise to look closer at mining stocks.
For Market & Money
PS: For a list of 10 mining stocks that could be set to gain in these troubled times, take a look at our free report compiled by Markets & Money’s resource expert, Jason Stevenson. Download the list here.