by Jim Williams
The copper price led the base metals higher on Monday with a two percent gain to $5,851, recouping ground the red metal lost on Friday. The rest of the metals are looking brighter too with lead, nickel and tin extending gains, while aluminum and zinc got some lift Monday as well. The strength of the dollar is acting as a headwind, which leads investors to believe the metals’ performance looks encouraging.
Focusing squarely on copper, China continues to cast a shadow when it comes to demand. Data recently released shows China’s Consumer Inflation increased 1.4% in February, rebounding from a five-year low in January, but their PPI dropped 4.8 percent – the 36th month of decline, granted last month’s data is likely to have been skewed by the Chinese Lunar New Year.
“Long term, I am concerned about copper because of its exposure to China’s economy, which I believe is experiencing a credit and asset bubble similar to Japan in the late-1980s,” says new contributor Jesse Colombo, Economic analyst and Forbes.com columnist. “I believe that the eventual bursting of China’s bubble is likely to cause copper and other base metals to fall significantly, erasing the gains made since their early-2009 lows. Since 2011, I have also been warning about the ending of the overall commodities supercycle/bubble, which has proven correct so far.”
Click here for an article Colombo wrote back in 2012 about the commodities bubble.
Colombo, recognized by the London Times in 2008 for warning about the Global Financial Crisis, provided the following chart on copper.
“You can see that copper is still climbing within that channel pattern,” adds Colombo. “But the key $3/pound resistance level is still overhead. If copper breaks down from that channel, that would definitely be a bearish sign and would likely indicate further declines ahead.
“If copper can keep rising in that channel, I’m watching how it will act at the $3 resistance – if it will bump its head and decline from there, or close decisively above, which would negate the bearish signal given when it broke below in November 2014.”
Colombo is also keeping an eye on the U.S. Dollar’s inverse relationship with copper. He states the U.S. Dollar Index is forming a pennant pattern, which could lead to further gains. Colombo adds, “If this Dollar rally continues, it could cause copper to break down again.”
In Other News
Seeking Alpha reports that the euro hit a new 12-year low against the Dollar. So far this month, the euro has dropped more than 400 pips, or 3.63% against the Dollar. This as Dallas Fed President Richard Fisher reiterated that the U.S. should promptly end its easy monetary policy and press ahead with an interest rate increase. Industry experts we talked with this week say now is NOT the time to hike interest rates because there is too much debt in the U.S. and not enough money in foreign banks. We will continue to keep an eye on the markets, more specifically, what the price of copper is doing and keep you updated.