When the economy and the stock market send mixed signals (as they are doing now), it’s always good to check in with the good doctor.
I’m talking about Dr. Copper, of course.
This is because the price of copper has historically been accurate at predicting the direction of the economy. The red metal earned the nickname “Dr. Copper” because it seems to have a Ph.D. in economics.
It’s not just a quaint Wall Street adage either.
A statistical analysis by Dutch investment bank ABN AMRO found a strong correlation between the price of copper and global trade volumes, economic growth in both China and the U.S. and prices of other commodities.
And it’s a leading (not lagging) indicator, as copper must be purchased long before factories, homes, cars, semiconductors, data centers and electrical equipment – among many other products – can be produced. Therefore, in bidding the price of copper up or down, markets are anticipating broader economic activity.
So, what does the price say now?
Well, copper is currently priced in commodities markets at around $4.86 a pound. Here’s the price year to date…
The price of copper hit an all-time high last week – at around $5.11 per pound.
But as you can see in the chart, it’s come off that price since then.
So, will the price of copper continue to fall? Indicating falling demand and perhaps falling economic activity and even recession?
Don’t count on it.
The recent drop in the price of copper seems to be related to profit taking by traders after one of the greatest rallies in the metal of all time. In addition, there are indications that copper got so expensive so quickly that Chinese manufacturers – among the world’s biggest consumers of copper – momentarily balked at paying the record price.
This Metal Is on the Rise
In the longer run, however, the demand for copper is only poised to increase.
Consider some of the most significant trends today… including the transition to green energy, the shift to electric vehicles and the enormous need for more housing stock . Those all require enormous amounts of copper.
But there’s another trend to add to those: the growth of artificial intelligence (AI).
Global demand for copper is currently around 26 million tons per year. The growth of AI data centers is expected to add one million tons alone in coming years and grow rapidly beyond that.
So while the price of the red metal has come off recent highs, don’t believe it will fall much further. In the long run, it should continue to rise.
And investors who want to invest in copper itself have several good options…
That includes investing in copper miners like Freeport-McMoRan (NYSE: FCX) – up 27% year to date – and Southern Copper (NYSE: SCCO), which is up 44% this year.
There are also exchange traded commodity (ETC) funds that track copper prices. A popular one is WisdomTree Copper ETC (COPA). That ETC is up about 23% this year.
In fact, right now may be a good time to buy the dip in copper.
Thanks, doctor!