Copper or not copper - as shown by Dr. Copper?

On Friday, the price of copper on the global stock exchanges exceeded 10,5 thousand. dollars per ton. This is a new record, breaking the level it reached in May this year. The copper barometer therefore shows an increase, despite concerns about the state of the global economy.

The price of copper is still high

On Friday, on LME the price of a ton of copper purchased for cash reached PLN 10,5 thousand. dollars. Contracts for copper with delivery in January cost over PLN 10,3 thousand on Monday. dollars. This breaks the record price from May this year. Paradoxically, copper prices are rising rapidly due to the growing demand and shrinking resources of this metal, despite concerns about the condition of the global economy, continued growth and the risk of stagflation.

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.

What is Dr. Copper telling us?

The price of copper remains an important parameter for anyone who watches the world economy. It is even said that copper has a "PhD in economics" (Dr. Copper). This is because it is widely used and used in many industries. And also correlated with market trends. When the economy is expanding rapidly, copper prices will rise, and when a slowdown and recession appear on the horizon, prices fall. It can therefore be concluded that this time Dr. Copper shows growth despite emerging concerns.

It is also worth looking at the copper / gold price ratio. It shows how many ounces of gold are needed to buy 1000 pounds of copper. Currently, this ratio is around 2,68 (the price of a pound of copper is $ 4,77, and an ounce of gold is $ 1781). It is a long-term market barometer for both risk appetite and bond yields. Its power to predict future market movements is due to the opposing uses of the two metals. Gold as the longest-lasting secure asset it serves to protect capital in times of trouble. On the other hand, copper, on the other hand, achieves the greatest positive dynamics in periods of economic growth.

Be sure to read: How to invest in copper? [Guide]

The absolute level of the coefficient does not matter. But the direction and its movement relative to US bond yields is very important. Where the charts diverge, such as in 2011 and 2020, bond yields eventually followed copper. The current level of the indicator is relatively optimistic. Both for the revival of economic growth (and thus profits) and for slightly higher bond yields. As for the price of copper itself, it seems that its price, after the current increase, should fall moderately next year, due to the increase in production, which is a natural effect of record high prices.