Simit Patel

Copper has become a renewed subject of interest, as some market prognosticators view copper as a leading indicator of the economy as a whole. This results from the fact that copper is used in a wide variety of businesses -- industrial products, semiconductors, infrastructure, etc. -- and thus changes in copper prices can signal big changes in sectors that are copper-dependent. Currently, copper prices are rising, which could be interpreted as businesses showing an interest in buying copper because of an increased willingness to assume risk and invest in certain sectors of the economy.

The chart below illustrates. The transportation and semiconductor sectors tend to be particularly dependent upon copper, and thus included ETFs that track them (XSD for semiconductors and IYT for transportation) in the chart below; we may be able to learn more about which sectors in particular are moving.


While semiconductors have been rallying since mid-November, the transportation sector continues to be devalued. Moreover, the overall demand for copper is declining around the world, as this Bloomberg article notes, and has decreased copper mining efforts.

As platinum, silver, and gold continue to rise while Treasuries continue to fall, copper's rally may signify greater inflation concerns. As metals have rallied while commodities have remained stagnant, the market may be signalling greater concerns about inflation in the midst of a lack of investment opportunities.

Thoughts on Trading

Copper has taken a particularly harsh beating thus far, as the chart above illustrates. As such, the bottom identified in the chart may be a critical level to watch to gauge broader macroeconomic trends; a break of that level could signify the next leg down for equities.

Conversely, copper may be a better play for those looking to profit from reflation of the money supply. As copper has fallen more than many other metals since falling asset prices set in in August of 2008, it may be due for a larger correction.

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jaro g.

hi simit,

very good points (as always ), i have an additional question anyway:

why should the transportation sector be in any way dependent upon copper? i can't imagine any connection/relation between these two markets ...

thx,
j.

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Simit Patel

hey jaro,

copper is used to manufacture lots of vehicles -- cars, subway trains, tractors, and more, hence its close relationship with the transportation industry.

here is an article i found that talks more about copper and its use in the transportation industry:

Copper.org: Copper Facts: Copper In Transportation & Industry

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jaro g.

well, that makes sense .

thx,
j.

__________________
motto: leben und leben lassen ~ to live and let live

my InformedBlog ~ my most often updated site
my blog ~ my beliefs + my development as trader/investor + much more
my website ~ written mostly in german, contains my (not only investment) philosophy + FAQs + private photos + various links + quotations +
.

mattman

Great blog as always. I recently developed an interest in precious metals. I don't know much about Copper and just began to do some research to see what I can learn about it, and I ran across this blog on a google search engine. I will do some more research on copper over the next few days and post any interesting findings.

I read the article you posted about copper being related to the auto industry. How do you think GM filing bankruptcy will impact the value of copper over the next few weeks or months?

Simit Patel

hey mattman,

i don't think GM's bankruptcy will have much of an affect, aside from psychology, which we'll be able to see in the price chart. XSD, the semiconductor ETF, is more worth watching, in my opinion. Personally I'm bullish on copper, as I think it will do well in an inflationary environment, which I think we are now in.

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My Links: Proud to be a Permabear, Crisis Investing Video Series, Investing in a Centrally Planned Economy, The Investor 2.0 Quest