Sunday, February 15, 2009

A Glimmer of Hope

Recently I've been following a minor rally in the front-month contract of copper which helps alleviate some of my pain in this recent maelstrom of negative news. Copper serves as a great indicator of economic health because of its many global applications ranging from plumbing and radiators to wiring and electronics. Not to mention every automobile produced around the world contains about 50 pounds of copper. However, before we break out the champagne we should analyze some possible reasons for this rally. I personally credit a majority of the recent appreciation to speculation that Chinese demand might perk up in the coming months (mainly due to government stimulus). Chinese copper consumption accounts for over 25% of world demand, but that still leaves three quarters of the market unexplained...Futures are usually the first to be influenced by any sort of infrastructure spending, so it's likely that the market is also beginning to price in the magnitude of the recent U.S. stimulus package. These are just a couple of thoughts, so feel free to suggest any additions. It's to early to tell if this is an omen of better things to come, but it's definitely worth keeping an eye on.



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2 comments:

  1. Brian BelcherFebruary 16, 2009 at 10:11 PM

    I think your reasoning is right on. As for the other 75%...possibly developing economies (emerging markets). A recent BCA research periodical utilized the emerging market relative strength indicator to show a possible bottom in the global economy. Strong emerging markets usually signal a turnaround in the global economy, which might give some percentage to the copper futures market.

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  2. Albert WangFebruary 17, 2009 at 10:18 PM

    Looking at the overlay of $COPPER with USO, the two have not shown much correlation since 2000. Since July 2008 however, both have moved decisively lower until copper's recent rally while oil has continued to fall in price. Perhaps once we see USO or USL show a similar chart to what you have outlined in your post, that 'glimmer' can define itself into a strong candlelight of hope.

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