Copper Prices Soar to New High as Stockpiles Hit 47-Year Low

October 18, 2021  |  Michael Reilly

Copper is the cheat code for spotting improving global growth.Mike Reilly Director of RiskManagement, Rowe Wealth Management

The story goes, as goes demand for Copper, so too goes global economic growth.

That’s because historically, Copper has been a great leading economic indicator critical to the global growth narrative.

When Copper prices fall, it’s a sign that global growth is waning…

But when Copper prices are rising – or surging, as they are today – it’s an indication that the global economic engine is heating up.

As a matter of fact, Copper is up 8% in just the last week, so investors looking for insights into global growth will want to track the price of Copper.

Why does Copper matter so much?

It’s the third most widely used metal in the world used in everything from electronics to industrial machinery and construction – specifically wiring and plumbing.

Copper has also found its way into electric vehicles and renewable energy industries like wind, so this will only further demand.

After peaking back in March of this year, Copper cooled off consolidating for seven months. But now Copper appears to be breaking out once again and testing its earlier highs.

The biggest trigger for the surge in price is a tight global supply, with copper inventories at the London Metal Exchange (LME) falling to levels last seen in 1974.

At last look, the LME had only around 14,150 metric tons of Copper not earmarked for delivery.

To put that in perspective, nearly 25 million metric tons of Copper are consumed globally every year.

With supply tumbling and prices soaring, any company that mines copper during these times could make a killing.

Here’s how to spot demand for Copper before everyone else:

Look at the ratio between copper and gold – Copper represents growth, while Gold is defensive.

In strong economic conditions, there tends to be more demand for copper and the ratio moves higher.

You can see how this ratio has shifted from the more defensive Gold to the relative offense of Copper, making a new high again this week.

The higher this ratio goes, the more it speaks to the upside potential for global economic growth.

With Copper prices surging, one way to participate is to consider Copper miners.

A good example of this is Freeport-McMoRan. FCX is the largest U.S.-based and among the world’s five largest copper mining companies.

Here’s a chart of FCX – the highlighted area shows how FCX has been range-bound for months. But it really started to pick up as Copper prices moved quickly higher.

Freeport-McMoRan has shot up over 30% in recent weeks. We’ll see if this is the spark to push FCX to breakout and retest its former May highs.

But as exciting as that may sound – and it is…

The real story here is not just Copper or Copper miners, but the Global implications of rising Copper prices.

As long as Copper continues to outperform Gold on a relative basis, investors can look to stocks and commodities over the relative safety of bonds.

For commodities, focus on cyclical groups — think energy and base metals.

For stocks, lean on cyclical and value areas like energy and materials. Industrials and transports should be doing well in this environment too.

And don’t forget to pay attention to emerging markets as we’re seeing risk appetite improve around the world.

Markets actually look like they are finally beginning to find direction after doing nothing since the February highs.

Remember to check back next week to see what has changed.

Until then, safe investing.




PS: Are you looking to take some of the stress out of your investment journey? To make the whole process easier, give us a call. We’re opening our doors to new investors who have portfolios valued over $500,000. If you’d like to schedule a free 1-hour consultation to review your portfolio, click here.

Get Our FREE Guide

How to Find the Best Advisor for You

Learn how to choose an advisor that has your best interests in mind. You'll also be subscribed to ADAPT, Avalon’s free newsletter with updates on our strongest performing investment models and market insights from a responsible money management perspective.

Avalon_NewGradient_24Feb22 copy