Dr. Copper is suddenly extremely worried.
Longtime readers of Liberty Through Wealth know that I watch the price of copper because, historically, it has proved to be an accurate barometer of the health of the economy and where it’s headed.
And because economic growth drives corporate earnings, copper has also been a good guide for investors, as to whether their appropriate investing stance should be “risk on” or “risk off.”
In fact, the red metal has been so accurate in predicting the future that it earned the nickname “Dr. Copper” a long time ago – because it seems to have a Ph.D. in economics.
It’s not just a quaint Wall Street adage either.
A statistical analysis by Dutch investment bank ABN AMRO found a strong correlation between the price of copper and global trade volumes, economic growth in both China and the U.S., and prices of other commodities.
And copper’s price is a leading (not lagging) indicator, as the industrial metal must be purchased long before factories, homes, cars, semiconductors, and electrical equipment – among many other products – can be produced. So in bidding the price of copper up or down, markets are usually anticipating broader economic activity.
Just a few weeks ago, copper prices were soaring. At the end of March, one pound of copper hit $5.30, up 32% for the year and a new record.
But that rapid price change was deceptive. The price of copper was far higher in the U.S. than in other countries, reflecting the 25% tariff the White House has been threatening to slap on the commodity.
Here’s what the price chart looked like on March 31…
Companies and traders were rushing to get as much physical copper through U.S. customs as possible before the new levy was put in place (that tariff still hasn’t been implemented, as the White House says it is now “studying” such a tariff).
So the rise in copper prices in the U.S. wasn’t really reflecting any anticipation of an economic boom. It merely represented the expectation of higher copper prices in the coming months due to the threatened tariff.
Since then, however, the price of copper has plunged globally. Here’s the current chart…
Why has the price of copper fallen so rapidly this month?
Because now – instead of worrying about the tariff on copper imports to the U.S., – the entire world is worried about the economic impact of the slate of new “reciprocal” tariffs that President Trump unveiled on April 2.
The thinking among copper traders is that the new tariffs could trigger a global recession. And that would mean a massive decrease in demand for copper.
So Dr. Copper is back to predicting economic activity, and the recent price plunge indicates that he’s very, very worried at the moment.
Me, Worry?
As for investors (other than copper traders), we, too, should be worried.
There’s no telling how long the new tariffs will remain in place and what kind of damage they’ll do to the economy and the stock market.
Worried, yes. Panicky, no.
We at the Oxford Club see the current market drop as a chance to make money. Because there hasn’t been a single market correction or crash in U.S. history that hasn’t also been a buying opportunity that paid smart investors handsomely.
So hang in there while we identify the opportunities and bargains this crisis presents. There will be many.
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