Market volatility, political drama increases uncertainty as metals fall

As Democrats prepare to coronate Kamala Harris, investors are growing nervous.

One measure of investor apprehension is the VIX volatility index, also known as the fear index. The VIX spiked on Thursday to its highest level in three months.

That coincided with a selloff on Wall Street, with tech shares getting hit especially hard. Commodities and precious metals markets also got hit.

Also falling under selling pressure recently has been copper. The red metal is down more than 20% since peaking in May, though it remains up modestly for the year.

Weakening durable goods orders in the United States combined with concerns of a sluggish economy in China are weighing on copper prices in the near term. But the long-term outlook for copper remains bullish given that demand for the metal is expected to grow rapidly in the years ahead from electric vehicles and electricity infrastructure.

Each electric vehicle produced requires 132 pounds of copper on average – far more than a gasoline-powered vehicle. And each new electric vehicle produced requires additional charging capacity. Charging stations require large quantities of copper and other metals.

According to the International Energy Forum, copper output from mines will need to more than double over the next 30 years in order to meet projected global demand growth. That would require dozens of new copper mines to be opened, even as the process of developing and readying a new mine for production can take 20 years or more.

Meanwhile, many existing mines will struggle just to maintain current production levels due to degrading deposits and rising costs of extraction.

A looming supply crunch in copper could lead to price spikes. The upshot is that investors can position themselves to profit from it.

They can try to find publicly traded mining companies that are actually profitable. But for a variety of reasons, rising metal prices don’t always translate into higher share prices.

A more direct way to play the copper market is to own physical copper itself. Yes, copper bullion products are available to investors, as are copper pennies.

Of course, copper isn’t a precious metal. Given its much lower price by weight compared to gold and even silver, copper may not be as practical a metal to accumulate for wealth protection. It’s generally sought out by those with extremely limited budgets and by those who want to add some small-denomination units to a hard money barter stash.

An alternative way to play copper is to buy silver. Like copper, silver is essential in EVs and electrical infrastructure. And like the copper market, the silver market faces supply deficits that push prices much higher in the years ahead -- regardless of who the next President is.

We now know it won’t be Joe Biden. In his address to the nation, he said he was dropping out of the presidential race in order to save democracy.

He was clearly losing the popular vote to Donald Trump, according to all the polls. But apparently, a democratic election that resulted in a Trump win would be undemocratic.

After rigging the primary system to prevent Robert F. Kennedy Jr. from challenging him for the Democrat nomination, Biden is now pushing to install Vice President Kamala Harris as the party’s presidential nominee – without any say from voters. All supposedly to save democracy.

Harris has been broadly unpopular as Vice President. Whether she will fare better than Biden in a matchup against Trump remains to be seen.

The bigger question is whether the election will bring social unrest and a Constitutional crisis that causes the world to question the stability of the United States and its currency.

Democrats may be unwilling to accept a Trump victory as a legitimate outcome under any circumstance. And Trump may be unwilling to accept defeat under any circumstance – especially now that his standing in the polls is much stronger than it was in 2016 or 2020.

We’ve already seen an attempted assassination along with what some have described as a coup by Democrat party bosses, who left an ailing Joe Biden with no choice but to abruptly end his re-election bid.

It’s not clear whether Biden will finish out his term as a lame duck. It’s not even clear whether he is still in charge of anything at this very moment.

What does seem clear is that 2024 won’t be a typical election year filled with typical political drama. It is shaping up to be one of great peril, one that brings heightened risks to unprepared investors.