Copper is a cheap, plentiful metal with lots of useful properties: It resists corrosion and is an excellent conductor of heat. As a result, it can be found in the intestines of a good chunk of the world's industrial economy. Plumbing, radiators, electrical wiring, and air conditioners all require copper....Nobody, says you? Really?
The rising demand has also been good news for copper traders. This monthly chart plots copper's rise over the last several years, and this vertigo-inspiring chart illustrates how the price of copper has doubled in the last year....
The price of copper generally represents a pretty accurate barometer of the demand for it in the real world, rather than an irrational bet on its future value. Why? As Howard Simons, a strategist for Chicago-based Bianco Research, notes, copper is cheap, heavy, and plentiful. "So you don't stockpile it, you use it as needed." Nobody bothers to hoard it. (You'd need a massive warehouse to store any meaningful amount of copper.) And while some hedge funds are doubtlessly speculating on copper, "nobody goes out and takes a flyer on it, the way you would with more expensive metals like gold and silver,"
HO CHI MINH CITY, Vietnam, Nov. 24 -- China on Thursday acknowledged that a since-detained government trader placed a series of disastrous bets on the price of copper in London this summer, leaving the state to cover hundreds of millions of dollars in losses, according to a report in official Chinese media....It's so funny when highly-paid financial advisors get proven wrong. (In fairness, it's obvious that the Chinese trader was doing something very very stupid, so Mr. Simons can't be blamed for not anticipating that.)
China has in recent years developed a voracious appetite for raw materials, becoming the world's largest buyer of copper, iron ore and steel, as well as the second-largest purchaser of oil. This month copper prices soared to record levels on the assumption that China will eventually have to buy large quantities to square its accounts after the trading debacle.
The Slate article poses an interesting paradox for us. According to the article, Copper is a positive indicator of a good economy (high copper prices = goodness) and Gold is a negative indicator (high gold prices = badness.) So what does it mean when both copper and gold are reaching record high prices?
I honestly don't know. Any economists out there?