At time of writing, the share price of BHP Group Ltd [ASX:BHP] is up nearly 6%, trading at $46.85.
The BHP share price is in the process of flying up the charts on a rising iron ore price (snapping a downtrend in November):
We take a quick look at the iron ore price and how this is playing into the BHP share price at the moment.
Iron ore going berserk, BHP shares follow
You can see the iron ore price below:
That’s a strong bullish move for the metal.
But if you scan the latest iron ore headlines, many are starting to call a top or at least say the spike in the iron ore price will ease off a bit.
This would have a flow-on effect to the BHP share price.
I’ll be the first to admit that I’ve gotten the direction of the iron ore price wrong on a number of occasions.
The thing is though, iron ore’s inexorable price rise is sort of the same as the way the DXY (US Dollar Index) is sliding aggressively on a ballooning Fed balance sheet.
Loose Chinese monetary policy inflates the construction and manufacturing industries driving demand for steel and demand for iron ore.
In the short term, you can’t fight a wave of cheap money, ever.
Plenty of stimulus was rolled out earlier, but early signs are that China is starting to pivot to its debt burden.
You could look at the Caixin Manufacturing PMI for a hint of what may come:
A reading of 53 in December, lower than the decade-high of 54.9 in November.
53 means that manufacturing in China is still expanding, but at a slightly slower pace.
It’s a tough one to call.
Either manufacturing and construction start to fall off and iron ore’s rise cools…
Or that happens but the Chinese government rolls out even more stimulus.
How far is the government willing to extend the credit card though?
The Rum Rebellion’s Greg Canavan is certainly bearish on the long-term prospects for iron ore and BHP, in part due to China’s debt burden.
Outlook for BHP and the iron ore price
You can see some long-term potential resistance points below:
BHP’s already cracked through the first at $44, and is about to smash through the second, at $48 should the momentum continue.
$50 could be a stern ask though, especially with Western economies hovering near the precipice.
Iron ore always surprises however.
A world awash with cheap money has proven this much.
There is a deeper point however — which is that if you had bought BHP anytime since 2007 (March of 2020 aside), you’d be looking at a paltry return.
Dividends were paid out for sure, but it’s still a largely sideways movement for the better part of 15 years.
Vern Gowdie assesses five blue-chip stocks that you may hold in this free report from the lens of long-term returns.
The results of his analysis will definitely surprise you.
Hint: If all you’re getting is dividends, inflation means you aren’t getting much.
You can download this insightful report right here.
For The Rum Rebellion