Is Copper Suggesting Caution?

Some experts are suggesting “caution” as a result of recent weakness in copper prices. As an interpreter for the markets, I would caution against any such conclusion.

Copper, often cited as a measure of economic demand in emerging economies, has been driven largely by global currency devaluation since 2008. This assertion is support by the following charts:

iPath Copper (Nominal Price)


iPath Copper to Gold Ratio (Real Price)


While copper has made new U.S. dollar (nominal) highs in 2011, its constant currency (real) price remains well below the 2008 highs. In other words, the nominal copper trend is more a reflection of currency devaluation than economic demand.

Moreover, the recent dip in copper doesn’t mean much until there’s a material change in the leveraged money flows during the price reaction. As long as connected and retail money continue to buy (green up arrows) and sell (blue down arrows) the dip (red down arrows), the market suggesting that nothing has changed.

Copper (JJC) and the Commercial (C) & Nonreportables (NR) Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:


The setup in leverage money flows over the coming weeks will reveal if anything has changed. Until then, the decline in copper suggests little more than retail money acting predictably by selling weakness.

Market Headed for Meltdown?