Will Copper Shine Again?

Focus: COMMODITIES

Andy Waldock Image Andy Waldock Founder, Commodity & Derivative Advisors

After a five-week uptrend, copper has been going nowhere since attention has been focused on the fiscal cliff and what that might portend for US economic growth. Andy Waldock of Commodity & Derivative Advisors has another view and advise for the next move.

Copper is frequently referred to as the economist of the metal markets. This is because copper is used in nearly everything that’s made. If it’s not in the final product, it’s certainly in the production facilities and the machines used to make it. Therefore, one assumes that the more copper a business or country buys, the more production they see in their near future. This is part of the reason copper has such a high correlation with rising stock markets. In fact, the correlation relationship between the copper market and the S&P 500 hasn’t been negative since the financial meltdown in early 2009.

The copper market made an all time high in January of 2011 at $4.7735 per pound. Since then, the market has consolidated primarily between $3.25 and $4 per pound. The consolidation continues to tighten and can be easily seen on a weekly chart as the trend lines that define the highs and lows continue to converge. The news will tell you that the reason the market is in limbo is due to the fiscal cliff negotiations and that once a deal is struck, the market will see enough of the estimated $2.5 trillion pent up dollars in the domestic corporate coffers to push it back beyond its highs.

I would suggest an alternative scenario in that the copper market has been fueled by growth overseas in developing markets and that it may have run its course for the near term.