London, England

Tin prices hit a new all-time high on Wednesday, confirming the new uptrend in industrial metals this fall as the bull market resumes. On Thursday, tin hit another high reaching $26,790 a ton, up 60% since January. Copper and other metals have also joined the bandwagon as they rally sharply over the past several weeks.

The big move in base metals signifies that consumption remains strong amid declining inventories in London. It also suggests the global economic recovery, which entered a soft patch earlier this summer on growth fears in the United States and China, has resumed its upward trajectory.

Tin is widely used as solder in electronics.

Tin is now approaching a supply-deficit situation as production fails to keep up with demand; according to the International Tin Research Institute, global production will rise only 1.5% this year compared to an increase of 15% in worldwide demand. That shortfall means only one thing – higher prices.

But falling global supply isn’t the only variable supporting the price of tin. Super low global interest rates and a resumption of the U.S. dollar bear market are also juicing the market as traders ride the commodities bull to hedge against further dollar depreciation. On the LME, or London Metals Exchange, base metals are quoted in dollars. Other base metals like copper and aluminum are trading at two-year highs.

Meanwhile, as industrial metals continue to surge this fall, bond prices are also rallying. That positive correlation has some pundits questioning whether both sectors can continue to rally in unison, despite potentially offering investors different economic outcomes; benchmark U.S. Treasury yields hit another low yesterday as demand for the notes remain strong at both the local and international levels.

Plunging bond yields do imply some sort of economic softness is being priced in by the markets. The U.S. employment report should shed some light on whether the bond bulls are indeed correct or, alternatively, if the renewed uptrend in base metals warrants a continuation of the rally.

Bonds and base metals shouldn’t be rallying at the same time. This unusual correlation is a dangerous partnership and, in all probability, will end badly at some point as economic growth powers ahead or, possibly, falters as we approach the end of the year.