Wednesday, October 6, 2010
As you read this, copper is in the midst of an incredible turnaround.
Early this year, I was a big skeptic on the copper market. Prices had enjoyed a huge run higher... and I was concerned about huge potential stockpiles in China depressing the price.
For a few months this summer, this looked like the right outlook. Copper plummeted 20% from a high of around $3.50 per pound to $2.75. The big copper miner Freeport McMoRan fell more than 30% during that time.
But it's amazing what government stimulus can do.
As you can see from the chart below, copper has skyrocketed off its summer lows to a new two-year high. Commodities in general, led by copper, are benefiting from continued government-sponsored growth in China. Some analysts believe the government there is set to embark on another huge round of infrastructure building.
There is so much demand returning to the copper market, the International Copper Study Group says refined copper output will fall below demand for the first time since 2007. It looks like high copper prices could be around for the long term.
At this point in copper's uptrend buying a miner like Freeport McMoRan is essentially a momentum trade. Sure, you can make some solid gains if the price continues to head higher, but you're not getting a screaming deal like you were getting near copper's $1.50 bottom back in early 2009.
I think the main thing to take away from copper's incredible surge is that for now, the market is saying the wind is blowing in favor of global economic growth. This is bullish for almost all commodities, like oil, natural gas, coal, silver, and copper.
For the "trend traders" out there, that means being long a Freeport McMoRan or oil stocks. For you contrarians out there looking for cheap assets, uranium and natural gas are near yearly lows. With copper prices showing so much strength, both camps are likely to do well in the next year.
Gold explodes higher, breaking above $1,340 to set new record high.
U.S. dollar continues plummeting, near nine-month low.
Copper miners Freeport McMoRan and Southern Copper jump to new 52-week highs.
Earnings today... Monsanto (seeds & Roundup spray), Costco (big discount stores), Marriott (hotels).