I have heard a number of analysts refer to “Dr. Copper” as their favorite economist. Sounds strange but the price of copper has historically done a great job reflecting strength and weakness in economic activity and at the same time has a good record calling turns in the economy.
Source: Metalprices.com
Why? Because copper is a key industrial metal. When economic activity is strong, the law of supply and demand kicks in and the price rises. Conversely, when the economy weakens, demand recedes and prices fall.
The price of the metal has rallied from cyclical lows, suggesting we will see a pickup in global activity. Some of this demand is likely coming from China, and I would not discount the probability that the “smart money” is sniffing at the metal, anticipating a worldwide recovery.
Over the past month, copper has been going sideways and I would not be overly concerned unless the price drops below $1.85-1.90. Although steep recessions have normally produced sharp recoveries (see Steep Recessions and Subsequent Recoveries), we are more likely to see a gradual improvement in economic activity when the recession ends.
Why? Housing usually leads an economic recovery, but this time around, prices are declining and banks are still dealing with bad loans. We may be at or near a bottom in housing sales, but rates below 5% and tax incentives from Washington, DC have not set off a buying stampede. And the latest bump in mortgage rates won’t help either.
0 comments:
Post a Comment