Does a Bad Week for Copper Mean a Good Time to Invest?

Wednesday, April 13, 2016

There’s an old axiom when it comes to investing: “buy low, sell high.” The problem is, not every investor lives up to it. They tend to buy high and sell low. The herd mentality is strong in the stock market, which is why you have so many investors leaving stocks just as they’re tumbling, and only buying once they have the evidence that they’ve recovered.

But in the world of copper, things are a bit different—especially recently. Copper is not a stock, but the old axiom of buying low and selling high may still hold up. The only question is, when do you know if copper is truly at a low point…and does that low point represent a good time to get in? Let’s look at some recent news.

A Bad Week For Copper

InvestingNews.com points out that copper posted its worst week since January last week. Although gold has increased in the same week, that same success didn’t bear out in all metals. The problem, according to Bloomberg? There’s growing concern about production cuts after slow-rising demand. Because demand is low, a lower supply won’t fare well for the industrial metal. For the week, copper was down some 3.8 percent even as gold prices remained healthy.

This is especially noteworthy not because precious metals remain healthy, but because the outlook on copper was so recently bullish. InvestingNews had previously reported that “Copper prices [were] still on the rise”, after all, and followed a boost when the U.S. dollar fell.

So what does all of this mean for the world of copper—and where it might be headed? Is it possible to find a bottom in the current market or is it all just guesswork?

Guessing Where Copper Might Go

Obviously, no one has any knowledge of the future, but if the past is any indication, there are some assumptions we can reasonably make about the price of copper. First, it is not connected to the price of gold. We know that simply by looking at the performance of the two metals over the past week. Although gold remained healthy, copper sank. Although it was tempting to look at the success of copper and gold earlier this year as linked, it’s fair to say that on a limited basis, that doesn’t always hold up.

Next, it’s important to pay attention to the Federal Reserve. Regular readers here know that this is the same advice for gold prices—but the price of the dollar is just as important in the world of copper. When the Federal Reserve announced earlier this year that it would keep the target rate for interest rates at their current levels, copper went up as did items priced in dollars like gold, silver, and oil.

Combine this with your basic knowledge of supply and demand and the previous week for copper begins to make a little more sense. Like all investments, copper is a slave of supply and demand. Yes, supply and demand of the dollar will impact copper, but the supply and demand of copper itself will likely continue to be the top factor in determining its price.

Darren Capriotti

Darren Capriotti has been a market analyst for the past decade and is an expert in precious metals. He prides himself on his ability to analyze the market and offer true value to investors with questions about gold, silver, and other precious metals. Highly educated, incredibly passionate, and more accurate than most, Darren offers a true, unbiased look into what investors can expect in the precious metals market. You can reach Darren at dcapriotti@gold-eagle.com.