The Financial Times has an interesting article about copper reaching its highest price in 20 months. Included in the article was a brief discussion about why investors might want to pay attention to the price of copper:
The red metal is known as “Dr Copper”, as if it possessed a degree in economics, because many believe that its price swings anticipate shifts in global manufacturing activity. Copper has only traded above the $8,000 a tonne level during phases of strong economic activity, including the first half of 2008 and brief periods in 2006 and 2007. It hit an-all time high of $8,940 a tonne in July 2008.
Dr. Copper seems to be suggesting that we are in for a period of strong economic activity. Bear in mind that copper, as one of the prime industrial metals along with aluminum, nickel, and zinc, is a global commodity. The demand for copper certainly doesn’t have to come just from the U.S. In fact, in recent years, economic growth has been faster in many emerging markets.
There are a couple of important points here: 1) it may be a mistake to focus your investments entirely in your home country, and 2) supply and demand for copper are painting a very different picture for global economies than most economists are. I’ll let you be the judge of Dr. Copper’s forecasting ability this cycle by including a chart of JJC, the iPath Copper ETN . It bottomed in January 2009, three months before the bottom in the U.S. stock market-and it is still rising.
Click to enlarge. Source: Yahoo! Finance
Disclosure: Some Dorsey, Wright managed accounts own positions in industrial metals ETFs.
