Thursday, May 12, 2011

Dr. Copper? More Like Dr. Liquidity

"Dr. Copper" is one of most over-hyped economic indicators out there. The real economic is far too complex to be simplified into follow Dr. Copper. Besides, copper like stocks, industrial and agricultural commodities are being driven more by Dr. Liquidity than supply and demand dynamics. Copper’s real trend looks a lot different than its nominal (fiat money) trend. Those that adhere to the Dr. Copper theory better be able to distinguish the difference between the two trends.

The nominal trend broke above the 2008 high in 2011.

USD Copper ETN (Nominal)


The real, constant current trend, paints a completely different picture. Real price remain well below the 2008 high. Why? Liquidity is driving copper more than supply and demand fundamentals. Don't look for the angle to get pushed much as 2012 approaches. This explanation lacks voter appeal.

Oz Copper ETN (Real)


Headline: Why Copper Is the Metal to Watch

In recent weeks, metals of all sorts--precious and industrial--have taken a beating in a major selloff in the commodities market. Experts cite a number of reasons, including speculation, increased margin requirements (how much collateral investors have to put down), and concerns that the economic recovery may not be as strong as previously thought. But experts say the losses in copper are the most troubling.

While scarce precious metals like gold and silver are often perceived as safe havens or inflation hedges because of their inherent value, copper is an industrial metal that's seen as a leading indicator for the future of global economic growth. It's often called "Dr. Copper" because of its past success in forecasting the direction of the economy.

"Oftentimes, the price action in copper indicates what's going on in the global economy because it's used so much for so many industrial purposes," including electrical wiring, says Sean Brodrick, small-cap and natural resource analyst for the blog Uncommon Wisdom Daily. "The breakdown we're seeing in copper right now looks quite ominous."

Source: finance.yahoo.com

0 comments:

Post a Comment