Copper Losing Its Shine

Tuesday Nov 15, 2011

Page C 4 in today's WSJ reports that low interest rates in China have led to borrowing on the cheap, buying copper, and then flipping it at higher prices. 

So we put copper in gold over the Shanghai Index in red black bars. The SSEC topped last November 2010 and then again this year in April - May. Speculation in copper held up with other markets then collapsed along with world markets in August. The correlation coefficient at bottom shows a high correlation between the SEEC and Copper. 

Our conclusion is that the march to a world wide deflationary collapse is well under way. China has been the driving force for rising commodity prices. Now we learn that copper was held up via speculation not usage. The Goldman Sachs Commodity Index, the CRB, and the DJ Commodity Index all exhibit the same pattern as the above chart with highs earlier this year. 

The over building in emerging markets is reflected in the poor performance of Shanghai, Bombay, and Brazil. Russia is floating on a sea of high priced crude. The strength of Russia is keeping the BRIC index from collapsing altogether. 

Natural gas is trading at some of the lowest prices ever. It is being discovered all over the USA. The Keystone XL pipeline has been put on hold until after the election. A move to natural gas would certainly speed the USA independence from Mid East Oil. My point here is that low priced loans no doubt encourage speculation in oil prices just as it did in copper prices. There is  the cheaper natural gas alternative.