Historically, copper foreshadows what is and will be happening in our economy. It is often stated that copper is the metal with a Ph.D. in economics, and the data for the most part bears this out. When copper is down, the US economy is in recession; when the indicator is up, the US economy is expanding. As can be appreciated, copper does better during economic expansions. The metal typically peaks during recessions before heading into a down trend. Its because of this correlation to economic activity that copper has earned the name Dr Copper – meaning how healthy is the economy.
Current Analysis Of Copper Prices
- Copper generally peaks during recessions. At present copper is currently putting in a lower high and is trading below its 40 week moving average; copper peaked over 1 year ago.
- Investor sentiment not only tracks price but it often precedes it by a couple of weeks. The current price structure for the Bullish Consensus is bearish.
- Recent bearish patterns in the price structure of the Bullish Consensus have been bullish owing to central bank intervention. In essence, central banks have prevented a recession from unfolding.
- It should noted that each central bank intervention has provided less and less benefit to the markets. When looking at copper, we see that Operation Twist did not produce gains that were seen during QE2. It’s as though the markets have become resistant to the effects of monetary stimulation.
- The breakdown in the price structure of the Bullish Consensus for copper strongly suggests lower prices for copper, which in all likelihood implies a recession. Central bankers have been timely in their implementation of recent quantitative easing, and we could easily make the case that their interventions have thwarted the onset of a recession on more than one occasion. Copper will need to reverse from the current levels and investors will need to embrace that risk. This will be heralded by a reversal in the Bullish Consensus.
Self Directed IRA Action Plan
The current analysis and forecast for copper is that demand or consumption is dropping. Dropping demand suggest dropping prices. These trends are currently present and evident in copper prices. The forecast for demand and consumption is flat to down. This means recession.
Recessionary conditions would suggest that precious metals or real estate will be counter to the prices of copper. We are looking are hedging against uncertainty with hard, tangible and in-demand assets. We continue to support precious metals and real estate in self directed IRAs.
Disclaimer: The information provided is for educational purposes only and are not a solicitation or offering of an investment, investment advice, or tax advice. You should consult with your tax, legal or financial advisor to determine the suitability of any investments made with a self directed IRA account.