Why Copper Is the Metal to Watch
May 23, 2011
Often called "Dr. Copper," this metal is a telling indicator of global economic growth
In recent weeks, metals of all sorts -- precious and industrial -- have taken a beating in a major selloff in the commodities market. Experts cite a number of reasons, including speculation, increased margin requirements (how much collateral investors have to put down), and concerns that the economic recovery may not be as strong as previously thought. But experts say the losses in copper are the most troubling.
While scarce precious metals like gold and silver are often perceived as safe havens or inflation hedges because of their inherent value, copper is an industrial metal that's seen as a leading indicator for the future of global economic growth. It's often called "Dr. Copper" because of its past success in forecasting the direction of the economy.
"Oftentimes, the price action in copper indicates what's going on in the global economy because it's used so much for so many industrial purposes," including electrical wiring, says
The price of copper fell about 5 percent last week, to below
As the price of copper falls, the assumption is that economic activity, manufacturing, and construction are slowing down, says
Experts say a growing number of concerns about the stability of the global recovery are weighing on the industrial metal. A number of mixed economic reports have come out recently in
Economic growth also looks threatened overseas.
Copper's course is greatly influenced by economic activity in China. "
Investors in copper-related funds have benefited from copper's rise in recent months.
Two exchange-traded funds, Global X Copper Miners (symbol COPX) and First Trust ISE Global Copper Index (CU), track copper mining companies or other copper-related stocks. Over the past 12 months, both funds have gained about 50 percent. But over the past month, the funds are each down about 10 percent.
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