Azuria Capital’s Otavio Costa Bullish on Copper, Gold and Silver Amid Inflation Risks

Joining me to weigh in this morning is Otavio Costa, founder and CEO of Azuria Capital.

While this week we did see treasury yields surging right now, we are looking at some easing when it comes to yields.

But what do you make of the spike given the macro outlook and some of the inflation concerns around the globe?

I think traders in general, investors are really pricing a 2021 environment again, when inflation spiked up at that time, accelerated to the upside after COVID and the response from policymakers.

But the Fed was in a much more different environment at that time.

We're coming off zero interest rate environment, and we were able to embark in a you know, one of the most aggressive tightening policies we've seen.

So now that the market has seen a similar response in terms of the inflation numbers, everyone is thinking we're going to see a 2021 event again.

And I think that's causing the yields market to respond that way.

I think that is an overstatement to the situation.

I don't think the Fed is in a position that it can really tighten as much.

And so I think that the two-year yield is nearing a peak, in my opinion.

And that's going to be a big driver for markets here in the near future.

So a lot of the things that have actually sold off and had a pullback recently, given that situation, I think we'll probably see a reemergence of those assets in general.

Emerging markets, gold, miners, and others that have been hurt by these rising yields that we've seen recently.

Yeah, and speaking of this time, it's different.

I do want to mention that for the U.S.

Central Bank, today at 11 a.m.

Eastern Time at the White House, Kevin Warsh will be sworn in by Trump.

So that is something that we're paying attention to, not just him taking over the helm at the Federal Reserve, but also the fact that he does have a challenge up ahead given the Fed's dual mandate.

Now, we did see hot April inflation prints, of course, because of the energy shock from the conflict in the Middle East.

But I understand you're also tracking the global money supply and say that war isn't the only driver of inflation.

So can you tell us a little bit more about this?

Yes, certainly.

I mean, it's certainly not just, it's an important driver indeed.

We're seeing with energy and the ramifications of that on food prices and other things would be a very important factor to be considered for policymakers.

But it's important to remember that these things tend to become very contagious.

And on top of it all, we're still seeing not just the money supply aspect that you just mentioned, which is expanding not just in the US, but also globally.

You have to be also paying attention to the Fed's balance sheet.

It's also expanding at a time when inflation is also growing.

I remember when policy makers, I would say, or folks that were criticizing policy makers back in 2021 was because we were doing a lot of QE at that time.

And then we have to reverse policy and start dying.

And while we're not doing something too different in this case, I know we're not going to call it QE, but the Fed's balance sheet is expanding accordingly.

And so we have to be a bit mindful of, not a bit, very mindful of that.

And I think that the market, to your point about Kevin Warsh, a lot of folks have been saying that, or have been painting him as a potentially very hawkish, I don't think that's going to be the case here.

I don't think he's got a lot of room here to have a hawkish posture.

I do think he's going to be much more dovish than the market is expecting.

This reminds me a lot of 2024 when Trump got elected.

And the dollar was surging at that time with this kind of ridiculous view that Trump wanted to have a strong dollar and Scott Bassett.

And then everything reversed.

And so to me, this is kind of a similar situation.

Everyone is thinking the same way with Kevin Walsh.

And then most likely we're going to see a reverse of those trends here in the near future.

Yeah, and I do want to build upon this, Tavi, and get your take on what all of this means for metals, because as you mentioned, there are a lot of expectations for Warrish.

But at the same time, we also heard from G7 finance ministers this week.

So I understand your take on gold.

You're advocating for owning hard assets.

And given where spot gold prices are right now, we are well off all time record highs.

And we've also seen copper as well as aluminum hit records.

So what is your overview of metals as well as miners.

Well copper is on the run now and I do think it's going to be continuing to to accelerate to the upside as we get into what we call a, you know, it's breaking new highs.

It's a, it's, it's sort of a new entrance phase of, of, of the metal.

And we know that gold, silver and copper, let's just put those three, which are to me, the main ones that we need to be paying attention to.

Of course, there's others, but those three are very key here components for this industry.

And they're incredibly constrained when it comes to supply.

So that picture hasn't changed at all.

The energy disruption we've seen in the Middle East has made everything much worse in that case.

And so if we made all the right decisions today in terms of building new copper mines in order to address the issue, it would take us five, seven, eight years to get anything back online to bring the supply, new supply back.

So supply situation is sort of, very easy to forecast here in the near future.

And it won't change, most likely.

It's very unlikely to change anytime soon.

The demand side is surging, you know, and when you look at electricity demand and on-shoring that we're seeing, I don't think that's going to change anytime soon.

So I do believe that pullbacks in metals overall need to be, you know, opportunities.

And so gold has seen a big pullback here.

I do think, you know, lots of folks are you know, trying to understand it.

Well, would that come back, come down even more?

I don't really care about that.

I think five to 10 years from now, we're going to be at drastically higher prices for metal.

So you want to be sort of. you know, in my opinion, dollar averaging in those positions when you see those pullbacks.

But I do think copper is on the run here.

And, you know, copper miners have really underperformed gold miners.

I think we're going to see that we're seeing the opposite of that recently.

And I think that's a that's a real trend.

And, you know, if you look at copper relative to gold prices, extremely cheap historically, despite being at all time highs right now or near all time highs.

And so there's a lot of room for copper to run here, in my opinion.

Yeah, and I do want to get your take on emerging markets here.

Of course, given what we saw in global bonds as well as yields this week, there was a lot of focus on emerging markets.

But given the fact that there are rate differentials as well as policy to think about, when it comes to an emerging market such as Brazil, we are looking at strength in ETFs that are tracking some of these markets.

So when it comes to Brazil, give us your outlook.

You know, I think it's so much of a derivative of the gold idea, derivative of the real assets idea.

And so, you know, I think it's going to be one of the most exciting themes for investors in the next five to 10 years.

It's important to remember back in the early 2000s, those that bought just the Brazilian index, the most boring way to invest in the space, without doing any selection of companies and going down to mid-cap companies and others, just taking the blue chip stocks of the country and so forth. you got a return of 18x from 2000 to 2011.

So that was the prior cycle.

I think it's been written off as an idea that won't work.

A lot of people are starting to change their views about Latin America.

I think you could have sort of seeing that shift two to three years ago.

I'm speaking from Brazil right now.

I can tell you that there's going to be a lot of political shifts here, and not just here, but in the entire region of Latin America.

It has become very contagious, the political effect that we're seeing in terms of more capitalist agenda being driven.

And I believe that this is going to be a place that is going to be very strategic for particularly the US, Canada, and other places that may need resources from these countries, which are extremely underexplored and under-owned, historically speaking, as well.

So it's going to be unleashed, in my view, one of the most important opportunities for macro investors or investors in general.

And so I'm paying very close attention to it.

We've seen a little bit of a pullback recently, just like the metals, and I've been adding to my positions here in this pullback indeed.

Yeah, and Tavi, finally, before I let you go, I do want to ask you about a specific commodity, and that is corn.

So here in the U.S., we're about to head into a three-day holiday weekend, and some of us might have a tradition of grilling corn along with our barbecue, but I understand you're seeing corn prices breaking out.

So what do you make of this move.

Yeah, and it's sort of, again, it's linked to other stories.

I think a lot of people misunderstand the commodity space a little bit, and it's coming from a very humble opinion on this industry that I've been so involved.

I really think that there is a rotational dynamic that happens within the commodity space. where you always have the flavor of the month or the flavor of the year or the flavor of the last six months.

And not too long ago, it was gold and silver, if you recall, and then turned into oil.

I do think agricultural commodities is likely to be the next flavor, if you will, for investors.

And so why?

Because it's a domino effect.

The cost of everything to bring new supply to this market has gone drastically higher.

And that's going to have an impact in this space very significantly.

The agricultural commodities industry overall is very different in the metal space where forecasting supply is a lot harder because you can shift the supply curve much quicker than the metal space or the energy space as well.

And so when you have this type of shift when it comes to energy costs going higher, you also have a much more pronounced impact on the supply curve near term for those commodities as well.

So I would expect that prices are going to really accelerate to the upside of that space and corn is going to be just one of them.

I would say that cotton has been a kind of a leading, there's in macro, there's always a leading sort of asset in a realm of something.

And so in the realm of agricultural, I think that cotton has been leading the way.

But if you look at soybeans, sugar, corn, all that is just starting to sort of you know, turn rice is also another one.

I think there's going to be tremendous opportunities there.

And it ties back to Latin America, which has a lot of exposure to all these commodities, not just energy and metals and mining, but also agricultural.

So, I do think we're going to see, you know, an uptick or uptrend for those as well.

Well, Tavi, we will have to leave it there for today, but a lot to keep our eyes on as we count down to the second half of 2026.

Thank you so much for joining us today, and thank you so much for sharing all of your insights.