Dr. Copper: Be Wary of Declaring a Recovery

 |  About: iPath DJ-UBS Copper Total Return Sub-Index ETN (JJC)
by: Sarel Oberholster

It is said that copper (Cu) has a PhD in economics. The logic is that copper is found in almost every human economic endeavour and it is representative in all economies around the globe. The simplistic approach is that all the pertinent information about copper will be reflected in its price. Bare bones, look at the price action of copper and it will tell you what is happening in the economy.

Well, let’s interview Dr Copper and find its views on the state of the global economy.

First the basics, where are we?

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Source: Kitco.com

The five year price action says “V” shape recovery. That is, when one does not place too much emphasis on the bubble-like behaviour between 2004 and 2009. The five year volume data brings some uneasiness to the basic price action observation. Stock levels are still high and they are now also rising in a “V” shape. Where is the devil’s ton, that one ton of extra production which tips the price into a downward plunge?

One year price action is of late, more muted. The rising stock levels are seemingly in harmony with a lateral movement in the US$ price action since July 2009.

Looking only at copper in US$ terms does not represent a global picture. How does Dr Copper express itself in the major economies and some regional economies? It would also be useful to have a global benchmark which will be representative of currencies and commodities. Gold is the natural choice.


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Copper is expressed in ounces of gold in the same way as the copper price can be expressed in any currency. The price action of copper expressed in gold shows a peak and decline as opposed to the lateral price movement in US$.

Price action is what we are interested in and having established a gold benchmark we can now observe the relative currency performance against the benchmark.


Short term flat and in step with benchmark but copper is becoming more expensive in US$ than in gold of late.

Euro (EU)

Short term flat and the Euro price trend for copper relative to the benchmark is about the same.

Japanese Yen

Short term trending down in Yen but copper relative to the benchmark is becoming more expensive in Yen.

UK Pound Sterling

Short term trending down and copper is becoming more expensive relative to gold in terms of Sterling.

Chinese Yuan

A short term rising copper price in Yuan and only very recently becoming more expensive relative to the benchmark.

Brazilian Real

A short term falling copper price in Reals and more expensive relative to the benchmark.

Indian Rupee

The Indian Rupee copper price has hugged the gold copper price like a lovesick teenager for most of this period. The short trend for the copper price in Rupees is flat and to trend more expensive relative to the benchmark.

Australian $

The short term copper price trend in Aus$’s is down. Price action against the benchmark is in lockstep.

South African Rand (ZAR)

Similar to the Aus$. Short trend copper rand is down.

Polish Zloty

The copper price in Zloty’s is trending flat and is becoming more expensive relative to the benchmark.

Dr Copper is somewhat stingy with its price action information on the economy and the current trends are anything but robust. The copper price was up strong in some currencies, not so strong in others. Now the copper price is trending flat to down in most cases. The results can be summarised in a table.

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Chinese stockpiling is probably behind the price trend in the Yuan price of copper. The rest is giving a weak down signal at this stage. Only the two gold producers and the EU managed to hold their own against the gold price of copper.

The tentative results can be supplemented by looking at the relative price change in the various currencies since the beginning of the year. How did these currencies perform relative to copper?

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The relative performances can be expanded to also measure the standing of the currencies against the gold price of copper. The Euro no longer performs when assessed in absolute terms and the Real is on top with absolute performance. Now if Dr Copper would just tell us whether we should consider the Brazilian economy strong or weak? Ditto on the Indian economy.

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Extracting information from Dr Copper by looking at the price action is a tedious process. The “V” shaped recovery as presented in US$ price of copper has more to do with a weaker US$ than with a recovery in the global economy when one compare the performance of copper against gold and particularly commodity producing country currencies. Stockpiling and diversification from currency risk takes another bite from the uptrend in the copper price, neither of which is indicative of an economic recovery. The short term copper price trend gives a weak downward signal in spite of the continued need for store-of-value diversification.

Dr Copper says that we should be wary of proclaiming a “V” shaped recovery and in fact should be careful with any claims to a recovery until we see some more solid evidence. The warning is a bit more pronounced when Dr Copper and gold speak in unison on currencies and the devil’s ton is lurking in rising stockpiles.

Disclosure: No positions.