Jeff Currie on the Crazy Surge in Metals, And Why The Supercycle Has Years to Run

thousands of years. And then silver is a little bit in the middle, more of a safe haven. But we know it has it's used in solar it's used in photography, not that that really exists anymore. But you know what I'm saying. So it's like it's interesting to see, like, why are they all flying at the exact same time.

just the new memestocks, et cetera. But we have to dig in.

Carlisle Nose Commodities, as well as anyone else we talked to. So, Jeff, thank you so much for coming back on the Oud Laws podcast.

things that are in the periodic table. The atomic number have all done well, and the fundamentals and copper are not that much tighter than what you have in oil. So what's going on in the metal space is hoarding given the concerns over having availability of these critical minerals, And you throw out the idea of debasement, and I want to throw in three other d's d dollarization and diversity to your debasement. So debasement, de dollarization, and diversity

is what's driving all of these different metals. And when we think about the de dollarization, and that goes back to twenty twenty two, when the US and Europeans froze the central bank assets of Russia, every emerging market goes uh, oh, I don't want to be owning any dollar denominated assets because look what happens through the Russians. And as a result, they're movement as fast as they can out of dollar assets into assets that cannot be seized and precious metals

and metals are part of that. And then when you have the geopolitical risk as high as they are right now on a global basis, whether it was US cutting off Venezuelan oil supply to China, India and Europe, or it was the Chinese cutting off critical mineral supply to the US and its allies, or it's Russia cutting off supplies and natural gas, it's a dangerous time to be dependent upon foreign commodity supply and as a result, we have stockpiling and everybody talks about the squeeze in silver,

running it up to one hundred and twenty dollars an ounce. The reality is this is a squeeze by the population of the people in China. You know, they're hoarding the silver over concerns around export controls and things of that nature.

long ways to go? I like to point out that in nineteen seventy, when Nixon took the US off the gold standard, central bank reserves and gold stood at around forty percent. Last time I calculated late day in the last year. Wasn't that twenty seven to twenty eight percent, but the run up in the last couple of days could be as high as thirty by now. But I think the key message is there's still a lot more buying by essential banks who diversify themselves out of dollars.

What is it about silver in the population context that makes it so desirable? And by the way, I'm looking at a chart is from two days ago. But the Shanghai silver premium buyers in China panng more than five dollars an ounce versus everyone else in the rest of the world. But explain what is it this driving this purchase from the public in China.

and copper all have in common? They're superconductors. I know people say, well, Jeff, copper isn't exactly a definition of a superconductor. It's not as strong as silver and gold, but it sits up there in that electrification process. And so when we think about silver, it's critical for the industrial base of China given the importance of solar panels as a part of the industrial manufacturing process in China.

So you know, when if you're the PBOC or somebody like that, you're going to be very focused on making sure there's adequate silver supplies inside of China. So the fact that it also then has the store of value like gold and accessible by many parts of the population. Because even at one hundred one hundred dollars an hour, one hundred and twenty dollars an ounce as wherever this morning, it still makes it a much more affordable a store

of value. So I think that two key points for China and why silver is so important is its role as a critical mineral and as a superconductor. And given the importance of solar panels and other types of renewable investments to the Chinese industrial base, having a secure supply of silver is absolutely critical to the Chinese economy. Second of all, is when you look at the price of silver, even at one hundred and twenty dollars an ounce, it is still very affordable to many of the population as

a store of value similar to gold. And also given the recent price trends, people feel comfortable in holding it. So it has those two components that make it critical to the Chinese economy.

Maybe gold is wrong about the debasement thesis. Whatever, how do we know that We're just not seeing investors get this one wrong. People are just going from a mentoreame.

the big commodity supercycles. One in the seventies, one in the two thousands, and where I mean, just take the defense spending in Europe alone, it's likely to be nine trillion euros over the next decade. To put that in perspective, the Chinese boom in the two thousands was ten trillion US today it's about fifteen. So even just Europe on a loan, we haven't even factored in data centers in AI.

So when that occurs, typically what we see is a repricing and rerating towards asset heavy industries in commodities, or another way to think about it as short duration. Strangely is when interest rates are low, everybody thinks, oh, you would be doing capex cycles. No, you do them when their interest rates are high. Because the interest rates are high, they're telling you you need to put money into the ground.

And so we're moving into to one of these repricing towards asset heavy industries, which is why it will ultimately be sustainable across the entire commodity complex. And I just want to take a step back and talk about these repricings because in my career, I've lived through two. The first one was in that call it two through like four time period, and that's what we coined the term revenge of the old economy. Old economy is asset heavy,

New economy is asset light. And that asset light in the late nineties two thousands was really about the scalability of software. You don't need to have put a lot of money into the ground to be able to create growth, and that was the whole asset light model. But eventually we ran out of all of these heavy industries that you need to make the investments in and then China came on the scene and became clear we need to

make those investments. And that happened over that decade. But that repricing, rerating was a violent process as you moved out of new economy or into the old economy. The next time we saw that was in fourteen fifteen, where we moved out of the old economy and into the new economy. Why because it was clear China was at the end of the track. And if you remember that time period we go through there, the euro went from like one point fourd to parody in the course of

like eighteen months. I remember the period oil was coming down seven dollars a barrel, like every other day, everybody, what's going on? What's going on? I want to make a point here to get to your point about why is this sustainable across all these commodities. And when we look at I'm going to take a like a private equity pitch book in twenty twelve of a Canadian oil asset. They value the asset at one hundred and ten dollars

of barrel. The IRR of that asset that this oil field was twenty five percent at one hundred and ten. Now fast forward to twenty sixteen, after the macro repricing, oil was sitting around forty dollars a barrel. Now, let's go reprice the IRR of that asset. What do you think it is immediate responsibles? He would go, oh, it was negative. Rr. No, it was around eighteen nineteen percent.

It didn't come down much. Why is because the Canadian dollar reprice, so wages went down, you had a repricing of the cost of capital, you had a repricing of copper, iron ore. They all came down, and so your cost bass came down, such as the IRR was far more stable over that repricing. And that's ultimately what we're starting to see happen across this space right now. And I believe we're in one of these repricings. We're going to move back into the asset heavy space. I want to

make one last point before moving on this. During this it's going to make this one really different from ones in the past. Is I want to go back to the nineteen sixties because it's similar to today. And that was that, at least in the modern data the first big commodity supercycle, the asset light space back in the sixties was companies like Coca Cola. In fact, all the nifty to fifty were brands. What do brands have similar to Let's say Microsoft,

infinitely scalable at zero marginal cost. And so Coca Cola was the world's darling right now, and all of the big commodity producers, the miners, the oil companies were at the bottom. And then you had the Arab oil embargo create that catalyst to reprice. Now what happened here is that that's different today. So you think about that asset light space was Coca Cola, and then in two thousand it was Microsoft, and today it is Google and the hyperscalers.

Now here's where it gets really different in the power what's going to happen now is the asset light space is getting into the asset heavy space, i e. These hyperscalers are putting steel into the ground. And by the way, you're no longer a asset light infinitely scalable software company, You're a you're an oil company, you are a commodity producer,

You're multiple is going to get rerated. And so what we have is the asset light space this time is moving into the asset heavy space and putting steel in the ground. So this is going to be a real violent transitions. To ask about copper and silver and the rest of these things. What are the restrictions on their big CAPEX budgets? Is the availability of transformers? What are

transformers big chunks of copper? And so we have a difference in this cycle than once in the past is the asset light space is colliding in the physical space at the exact same time, which is what I thind to think that this repricing is going to be more violent, more sustainable, and what you're going to see, and it goes to a simple point that I observed in the two thousands was when oil first went out because oh it's a bunch of investors buying oil, it sits at

sixty dollars a barrel, that supernatural returns. No, you actually had capital rotate out of the asset light space and into the oil space during four to five such as the cost basis actually rose and there was no supernatural return. So go, Tracy back to your point, how sustainable is this? Well, what we're seeing is all the capital flowing into this asset heavy space and it's going to build the ground underneath these prices and support them from a relative cost basis.

And so when we think about fourteen thousand dollars a ton comper, doesn't mean these guys are earning supernatural returns because we see so much capital movements in the space.

helpful to understand. And we've certainly talked a lot on the podcast about the hyperscaler is getting into the real business of things and you know, going up the chain and in some cases getting getting into the power production, investing in their own nuclear plants and hiring power traders. So all of this feels very real. Let's just like you say we're in a super cycle, you say we're at the foothills of the Himalayas. What is history or your work say about how big and how far this can go?

no technology. I like to point out, where do you get the twelve years you know, were the first three years, or getting people to believe it before they start to really invest earnestly. And I would say this one started in twenty twenty and so the fact that we lost two years in twenty three and twenty five, whether it was copper oil and part of the reason for that was the rally and prices was so steep after that Russian Ukrainian invasion. The policy response globally was incredibly swift.

I want to point out that policy response in twenty two and twenty three was not so much the rise in interest rates but the creation of supply. And I say that is because you had inflation come down everywhere in the world in a synchronous manner, and it did it against record commodity demand and really strong GDP growth in the United States wasn't I tell you, it simply could not have been interest rates in the demand side. It had to come from a supply side. Where did

they get new supply? Russia, Iran, Venezuela, you know, some of the issues that are faceing to say. They got it through increased immigration on the labor side. There was a lot of ways they created supply all over the world to be able to deal with that. Now the point this time around, and everybody's bought into this oil supply lot, we don't have a problem is that those easy fixes are not going to be available next time around.

So this one's going to take longer than normal. But I also want to go why I'm comfortable with this being a supercycle is all of these things are all policy driven. The one in the seventies was due to the lbj's War on poverty, the big defense spending sound familiar, and then you had the air of oil embargo. If you look at what happened in the two thousands, it was the decision to admit China, the wto a policy decision.

Here the policy decisions is the war on free trade, and it's not just the US doing everybody's doing it. You know, curtailing commodity supply around the world. In fact that the three points we laid out in twenty twenty, in fact, it was on this show we laid them out. There's still very much valid today. And they were all policy decisions. One was deglobalization, the war on free trade. I mean, if anything, it's been turbo charged now from five years ago. And when we think about it, it's

all policy decisions. It's not just inside the United States where we're seeing this. You know, the Chinese cutting critical mineral supply. You know, Europeans focused on, you know, protecting themselves, defense spending. The list goes on. Let's go to the second one at the time, decarbonization or electrification. And I know a lot of people are going to look at, oh, well, didn't the US backtrack on that with it, you know, the recent political shifts. The answer is absolutely not. The

rest of the world is doubling down on electrification. For both when we think about the electrification of the world, where it wasn't decarbonization was not the motivator today, it wasn't then. And then going back in time, why do I say that, why did China build cutting edge technologies and nuclear power, solar wind batteries and the rest of it. They did it for energy security. Kind of goes into the deglobalization point. They want their own secure energy supply.

In fact, Carter coined the term energy transition and want to transition out of oil into renewables in nineteen seventy seven, not because they wanted to save the world, but because of energy security. One last point on this is France lowest carbon footprint in the world. It didn't get there because it wanted to save the planet. It got there because it wanted nuclear power. So it was Charles de

gaull decision to rid itself of the oil trade. So this story, regardless of what's going on in the political pushback, and I don't think green was ever probably the right way to phrase this. It's renewable, it's a secure source, nuclear powers, a secure source, throw data centers AI all on top of it. It's turbocharged. From the last time we talked about and then finally the third point was redistribution of the war on income inequality kate with the k economy. This is alive and kicking.

They're going to spend it on commodities and physical goods, and that ends up creating that inflation, and then the high income people suffer because the the response by policymakers to the higher rates is wealth comes down. And another way to think about all inflation is as a wealth transfer between the high income groups and the low income groups,

and then they go out and spend it. And so when we think about the demand here is that third one, which is this war on that income inequality is just going to demand more and more types of transfers to the lower income groups to be able to deal with the silvil unrest. And it's alive and kick in everywhere in the world right now. And so I would assume you know that, you know, if you liked any of these three stories back in twenty twenty, you got to love them today.

get this stuff? And so you'll see a supply response faster than perhaps you saw previously.

because this decision was made in the seventies. Remember when the EPA, the super fun sites and all of that. The Americans and the Soviets used to do this, they quit doing it and farmed it out to the Chinese because they didn't like doing it in their backyards. There's are really highly toxic processes, and so if you're going to onshore them and bring them back, you've got to figure out technology used to do this in a way that's going to deal with those nimby problems that people

didn't want to deal with fifty years ago. So it's going to be very time consuming. There's ways to get around it. But you know, whether if I heard you know, you can build these facilities on army land in the United States. You don't get any of the bureaucracy around environmental problems. But even so the last thing, you know, this stuff you did. You know, if you didn't like it in the seventies, you're still not going to like it today. So it's not something that can be resolved overnight.

It's going to take a long time. It's going to take an enormous amount of capital, new technologies created, re routing supply chains around the world. That's why I say, then, where is just the tip of the iceberg on what needs to be done here, which is why I think is going to go on, you know, for at least another decade. And one last point about the super cycle the seventies and the one in the in the two thousands, they were sequences of price spikes. They weren't a steady

upward trend. You had one in seventy three, another one in seventy seven, seventy eight, and another one in eighty. In the two thousands, you have one in four oh five, another one in eight, and then the final finale in eleven, late ten and eleven it was with Libya and then copper top eleven thousand. So everybody thinks they're like the steady upward trend in prices and assets the realities there sequence of price bikes, and this one will be more bubbly in nature. I like to say it's a bubbling

cauldron of supply and demand imbalances. And part of this is because of what happened with the surge in investment around let's call it the green investment around net zero twenty fifty. I like to say that that investment occurred from around twenty fifteen through about twenty one twenty two. It created an environment where you have lots of let's say, renewable win in places like Germany or Spain, but you don't have the batteries, the grid and the rest of it.

So while that creates is these pockets where you can see big shifts where you have negative prices of power at some point explosive prices on their side. So the one thing about this time around, it's going to create much higher levels of volatility across the commodity space. Like silver, you can see you get into these pockets were it'll

go up and down. And you know whether it was California power in the two thousands, and that my cycle, which sure reminds me what silver's doing today, is you end up with an environment in which the volatility gets higher. The volatility then scares investors away. The lack of investment then reinforces the higher volatility. And I think that that dynamic, in this bubbling cauldron of supply and demand imbalances is just going to be that much more vicious this time around than in the past.

lot of new copper production happening at this current state. Therefore, we're not going to see a big supply response be elicited on the silver side, and so you're going to get this mega squeeze. So here's my second favorite one that was twenty twenty two, now in January twenty twenty six. I mean, clearly the price is right, but this phenomenon as he described it. Does that sound pretty accurate to you?

the production. Therein lies the core problem. And the capital has not moved in. So Tracy back your point, how long is it go? We haven't even moved the capitol in yet. The capital is still sitting in the new economy or asset light world. And the returns. You know, by the way I've asked people, I go like this is in like twenty three twenty four, I go, hey, why don't you want to put money into these this space?

The answer was, Jeff, I agree with your story. The problem is the tech space is providing such real good returns that if I am underweight the space. I got a problem, and I'd rather be putting the money into what's out before me. That was a case in twenty three, twenty four, twenty five.

They're going to have to see it. And now that's moved so quick, so fast like it did in twenty two, that they're going to look at it and go, oh, I missed it. And I think, you know, it's like Tracy's point is how much further this go? How sustainable is it? And I think the key point there is it's that volatility is discouraging them. And that's why I tend to think what is going to force the money into the space is you're going to have to have the returns in the asset light tech or whatever you

want to call it. World get to a point that they're going looking at the old economy going I'm willing to take that risk and go in it because that's the only place that has returned. And when they do that, that's when you're going to end up seeing the rotation. And I also want to go back to a point here is the market is so severely underweight all of this stuff because it's been so hated for so long that when the.

other day. You take FCX and let's see ivanhoe mines and some of the other smaller copper producers, So what is their market cap is is all together two hundred billion versus Navidia at four and a half trillion. Now, all of a sudden, you take that money out there, and that has to go chase the space, and so you're asking how high can it go? You can go really high because you're talking about moving trillions of dollars out of asset light into asset heavy when nothing's been here for over a decade.

people don't push back. I mean when I think I said on the last time here, copper is the best trade I've seen in terms of fundamentals. Stan Druck of Miller recently he made the same comment that hey it's tight, Yeah it's really tight, but it may not work today, tomorrow, the next day. I know if I sit on the position and hold it long enough, eventually you'll get to that point where it does pay out. Because you know the physical supply and demand, the rubber meets the road

and you see the rise of prices. Now the question is can you stay liquid long enough before that event occurs. So, first of all, the reason why I'm so confident in these stories is the forward on these markets are incredibly unbalanced, whether if it is in copper, you know, the industrial metals, you know, the critical minerals, oil, all of them are really imbalanced. Because so that's the thesis why my confidence. Now,

what is the near term risk. It's not that you know that you're gonna because we're going to electrify the world. You don't have enough copper to electrify the world. The risk is like the demand for in housing demand in China collapses, but that happened in twenty three and twenty four, so you've already paid the price on that one. So when I think about these risks that you're talking about, they might come from the demand side, because you cannot create supply from thin air, so it has to be

demand coming down. But that demand coming down just ultimately delays how long it'll take before you run into the province. The main reason why copper didn't perform in that twenty three twenty four timeframe is we underestimated the severity of the property contraction in China, and part of that was the high interest rates. West forced the Chinese to keep interest rates too high because they had to prevent capital outflow, and as a result, it really hurt that property sector.

So that would be you know, it's different than the financial markets because the expectations can change on a moment and they're hard to forecast. Bottom line, you need this investment.

being passed through, et cetera. But this deeper dynamic that if you don't have a world of sort of relatively open trade, then that forces everyone to stockpile, and that forces everyone to build their own version, and that'll I'm going to build a chip plant here, and I'm going to build a chip plant there, and I'm going to build a chip plant there. Because we're also worried you

have that duplication. That's the war on free trade that whether it's public or private, forces all of this commodity intensive spending.