Talk about metals always seems to surround the most precious of them: gold. But when it comes to real trading, it’s the baser cousins that can truly shine. This is even truer now as China spends itself out of the doldrums and the non-precious metals — copper, aluminum, nickel, aluminum, lead and zinc, and their alloy brother, steel — have come to life. These are the metals closely aligned with economic booms and busts.
“We like to call it Dr. Copper because [copper prices are] an economic indicator along with crude oil,” says George Gero, managing director of RBC Wealth Management.
Copper seems to have shaken off some bearishness, reacting to positive financial news across the world, mainly in China, Gero adds. He notes that open interest in the futures contract has jumped 8% since January, a sure indicator that hedgers are selling against inventories.
Even fundamentals bear this out with the auto industry in recovery, both in the U.S. and China, and each new car uses roughly 40 pounds of copper wiring. In addition, with increasing strength in the housing market and energy complex, demand for copper used in structures is growing. That said, the road to higher prices will likely be bumpy, as noted by the chief executive of the world’s largest copper producer, Codelco, who told one newspaper that he believes copper prices will go lower before they go higher.
Copper may be still gaining strength, but other base metals’ behavior is stronger. For example, since the beginning of 2016, the S&P Metals & Mining index has outperformed the S&P 500 by 43%, according to the Daily Shot.