Another Metal Meltdown?

All eyes are on gold this week — and with good reason.

You’ve watched its quick drop toward $1,550. The financial media has picked up on the story to some degree. And many of you have shared your thoughts on gold’s future with me. Overall, it has been a fascinating discussion.

Yet in the middle of all the gold hysteria, no one’s paying attention to copper. But you should.

Not only is copper helpful when trying to gauge the strength of the global economy — it’s price is also approaching an important inflection point. In just a matter of days or weeks, this important industrial metal could break its multiyear uptrend…

Copper Price

Copper prices dropped to a one-month low earlier this week (it sits around $3.55 this morning). The reasons given range from worries over Chinese demand, news that the Federal Reserve may cut short its bond-buying program, and weaker housing starts, according to the Wall Street Journal.

“The industrial metal is widely known as Dr. Copper, the commodity with a Ph.D. in economics, for its ability to predict shifts in the economy and has a history of moving in the same direction as stocks because both assets are sensitive to economic outlook,” the Journal declared earlier this week.

But that’s not the case — at least not recently.

Copper has been considerably weaker than the S&P since late 2011. It also has posted a series of lower highs dating back to early 2012.

However, the metal’s post-financial crisis uptrend remains intact — at least for now. But the price is getting dangerously close to a critical support level near $3.50.

Thieves ripping through construction sites to steal spools of copper wire might see their payouts shrink soon. But you should be watching this chart closely even if you don’t rip copper out of walls of abandoned buildings. If we do get a breakdown, we could very well witness a ripple-effect throughout the commodity world…

Greg Guenthner
for The Daily Reckoning

Another Metal Meltdown? appeared in the Daily Reckoning. Subscribe to The Daily Reckoning by visiting signup for an Agora Financial newsletter.

More on this topic (What's this?)
Reprise: The Elfenbein Gold Model
Read more on Copper, Gold at Wikinvest

Leave a Reply