Why Cobalt’s Run Is Done…

Cobalt has been this year’s only market darling in the resources sector. And while that could change soon, so far, no other commodity has got investors interested. Considering the tortuous stock market conditions, punters keep hoping cobalt will make a comeback.

Now, I won’t rule that out. But don’t count on it…

Take a look the cobalt price chart below:

Cobalt Price Chart 29-08-17

Source: InfoMine
[Click to enlarge]

The base metal is trading at US$27.67 per pound today. It drifted sideways for some time, and is now starting to move slightly higher. Yet, despite lots of mainstream analysts screaming ‘buy’, caution remains the best strategy with cobalt. The market hasn’t been interested in cobalt stocks since February.

History talks

In Resource Speculator, I recommended selling a cobalt stock for a 138.6% profit at 10.5 cents per share on 27 February. The buy-in price was 4.4 cents on 23 June 2016. We virtually sold the high:

Cobalt Stock Gain Chart 29-08-17

Source: CommSec
[Click to enlarge]

This stock is starting to look more promising. But it won’t do much unless cobalt rallies hard again.

We also tipped another cobalt stock at 16.5 cents in June last year. We sold part of our holding near the 43-cent high for a 75.8% gain on 27 February.

The price action is shown below:

Cobalt Stock Gain 29-08-17

Source: CommSec
[Click to enlarge]

The company’s share price is trading above our previous buy-in price today. But a break of 15 cents could trigger new lows. While there is a risk of that happening, I don’t think it will happen soon. The company has a great copper story and, if cobalt sees another run, we could potentially see higher prices ahead.

Don’t count on another cobalt run, though.

Despite the base metal now widely being touted as a battery play (precisely how I described it mid-2017), the story hasn’t changed. Cobalt has nothing to do with electric cars as most analysts suggest.

The mainstream opinion is seriously flawed…

Cobalt’s price jumped purely because civil unrest broke out in the Democratic Republic of Congo (DRC) — the world’s largest cobalt supplier — in December. The country’s president, Joseph Kabila, refused to step down when his constitutional mandate expired.

Take a look at the cobalt price chart again.

Cobalt Price Chart 29-08-17

Source: InfoMine
[Click to enlarge]

You can see the cobalt price took off around that time, in December. Joseph Kabila’s actions resulted in massive turmoil, which saw policemen decapitated and dozens of protestors killed.

Here’s the latest news, via Deutsche Welle on 9 July:

A vote to replace Congo’s president Joseph Kabila might not be possible this year, the head of the electoral commission said. Opposition leader Felix Tshisekedi said it was “a declaration of war on the Congolese people.”

It’s clear why cobalt prices remain elevated. Mark my words: Cobalt prices are likely to drop like a rock if the situation in the DRC sorts itself out.

Now, while there’s no knowing if that will happen, common sense says it won’t be sorted out soon. If the political situation worsens, cobalt could see a second run. But cobalt needs to break through US$30 per pound at the very least. And while that could happen, I’d still avoid the sector for now.

Remember, cobalt stocks ran hard when the cobalt price skyrocketed from December to February. In my view, cobalt will need to run just as hard again to produce another stellar run.

It’s time to move on

In my view, it’s best to prepare for the next ‘hot’ commodity instead of sticking with cobalt. Buying low and selling high is how you make the big bucks. Looking at the market, there are a few sectors that look good. But anything could happen next…

We might be near the next downturn in the resources market. I’m not saying that’s the case. But, either way, you should think strategically about your next move.

Do you buy the producers, developers and advanced explorers? The kind of stocks you can hold on to and hopefully watch your portfolio grow over a few years?

Or, if you can tolerate a bit of risk, do you take a punt on a few speculative stocks? As with the stocks I covered above, speculative stocks could offer the best opportunity to make lots of money.

If you’re willing to take on a bit of risk, I believe you should buy my favourite nickel stock. I believe it’s extremely close to a life-changing announcement. For more details, go here.


Jason Stevenson,
Resources Analyst, Resource Speculator

Jason Stevenson is Markets & Money’s resource analyst. He shares over a decade’s worth of investing and trading experience across resource stocks and commodity futures and options. He originally studied accounting and finance at Curtin University, where he was awarded a first-class honours degree. His professional background stems across high-net-worth, top tier accounting (corporate finance, tax and auditing), and sell-side equities research. Before joining the team at Markets and Money, Jason worked at boutique firms which advised fund managers and high-net-worth clients on where to invest. Whether it’s gold, crude oil, copper or an obscure metal like vanadium, you can rely on an in-depth analysis in Markets and Money. Jason also brings you extensive macro, political and geopolitical analysis from around the world. He leaves no stone unturned when it comes to telling the truth. Jason is also the lead analyst of Gold Stock Trader, a premium service for investors serious about precious metal stocks. Websites and financial e-letters Jason writes for:

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