Wednesday, October 20, 2010

Key Statistics: Dr. Copper or Why are Copper Prices So Important?

10/20/2010 Portland, Oregon – Pop in your mints…

Today, we will ponder what the heck this guy is doing and why is it an important indication of where mankind is generally headed…

To hell in a hand basket?
No, this man is not stoking the fires of eternal punishment, he is merely smelting copper, the topic of today's Mint.

Copper is not simply something that pennies used to be made of (they are now mostly zinc and will probably be nothing more than colored steel in the near future).  Rather, the movements in its prices are considered by many to be better at predicting the trend of future economic activity than all of the predictions that the world’s leading economists can muster.  Hence its nickname, “Dr. Copper.”

Why is this?  To answer this, we need a basic understanding of man’s relationship to copper.  Since it burst on the investment scene approximately 7,500 years ago, people have found a myriad of uses for this element known as Cu on the periodic table of the elements.  It has been used in weaponry, tools, decorative objects, cooking and eating utensils, and money.  Its central useful attributes are that it is durable yet easily malleable, it binds well to other metals, and it is an efficient conductor of heat and electricity.

Given man’s longstanding relationship and experience with copper, taken together with it’s obvious utility and relative abundance, we can draw two conclusions which tell us why the relative price of copper is a great predictor of the trend of future economic activity.  First, nearly every society on earth knows what copper is and has found a use for it.  Second, copper is a basic raw material need for anyone undertaking a large scale modern construction project.  And just why would someone undertake a large scale modern construction project?  Today the answer may be because they are receiving a boatload of stimulus money to do so!  However, under normal conditions, it would be because they anticipate future demand for whatever wealth generating activity that construction project will be used for will be large enough to justify the expense.  Since copper is traded globally, we can infer that a rising relative copper price is indicative that a growing number of persons are undertaking large scale modern construction projects in anticipation of large scale future demand in many places on the globe.  Simple, right?

In layman's terms, demand for copper is the first signal that massive things will be constructed, things will be produced in large quantities, and hoards of people will buy and/or live in them.  Or what we define today, for better or worse, as economic growth.

Could all of these people purchasing and investing in copper be wrong about the scale of anticipated future demand?  Of course they could be.  If you pause and soberly reflect on life, speculation is implicit in all human action.  However, people investing their own money, especially a large amount of it on large scale modern construction projects, want as close to a sure thing as they can get.  They have done their homework and generally abort their plans quickly (i.e. before making a large copper purchase) if they reasonably see them as not likely to pan out.  Their decision to purchase copper is usually a large bet that things are going to get better.

To learn more about Dr. Copper, I suggest consulting the Wikipedia.  To see the latest news on the modern copper industry, I suggest the base metals site.

Copper, it’s not just pocket change anymore!

Stay Fresh!

David Mint

Key Indicators for Wednesday, October 20, 2010

Copper Price per Lb: $3.73

Oil Price per Barrel:  $80.11
10 Yr US Treasury Bond:  2.48%
FED Target Rate :  0.19%
Gold Price per Oz:  $1,337
Unemployment Rate:  9.6%
Inflation Rate (CPI):  0.1%
Dow Jones Industrial Average:  10,979
M1 Monetary Base:  $1,460,900,000,000