Most famous metals have been notably lacking in lustre this year, but not all…
Two months ago, I wrote a couple of articles about four of the five most traded metals in the spread betting / CFD industry. I revealed that my first big win over my 2075-trades-and-counting spread betting career was by being long (bullish) on Palladium and short (bearish or thinking the price will fall) Platinum back in 2005. My other article focussed on the two most traded metals, namely gold and silver. I flagged that Gold was sitting about a quarter from its all-time high, whilst silver was languishing a whopping two thirds from its 2011 peak, yet the speculators appeared to be increasing their bullish bets. Before coming back to study whether the Platinum / Palladium price had returned to parity or whether the gold and silver bulls had enjoyed some positive trends over the rest of the summer, I shall turn to the third most popular metal amongst the global CFD trading community.
Having just flown back from Santiago, it feels apt to put copper in the spotlight this week…
Having lagged behind the USA in terms of production until the early 80s, Chile has soared into the lead, dwarfing every other nation. Indeed, Chile’s production now is so great that 30% of the world’s copper comes from the Antofagasta region, which is the sum of the next four largest producers (China / Peru / USA / Democratic Republic of the Congo). Essentially, two thirds of the global output comes from these five countries.
If one sixth of your economy revolves around the mining of just one metal, you’ll be following prices quite closely. And when you have the double whammy of a socialist president and a collapsing copper price, given Latin America’s reputation, you would expect a stalling economy and considerable civil unrest. It is a testament that Chile is seen as the most stable and prosperous nation, leading Latin American nations in competitiveness, income per capita, globalisation, economic freedom and despite the occasional questionable side dealings by the socialist leader, relatively free of the corruption that unfortunately blights much of the region.
Presidential elections occur next month and the next President is highly likely to be from the other side of the political spectrum. This is giving one boon to the recent economic confidence indicators. The other boost is explained simply by a glance at the chart below.
Yes, if your leading export and 1/6 of your economy sees the underlying price rise by 38%, you can expect a few percentage point boost to your GDP figures. Reports of global deficits have been a constant this year and thus we have seen this impressive move higher.
At this stage, it is worth comparing the performance of copper with the other four popular metals for spread bettors and CFD traders.
Aside from Palladium, which has had exactly the same stellar 12-month performance as Copper in percentage terms, the shiny jewellery metals of Gold / Silver / Platinum have endured a period which could be justly labelled as particularly damp-squibish. With a lot of huffing and puffing, Gold has just about broken into positive territory. Silver and Platinum have far from shone in this year of “Risk On” seeing their prices drop by 5%.
I have one friend who is an ardent Silver Bull. Back in 2011/12, when Silver was >100% higher, he was very bullish. Having fallen 50% from its 2012 high and 2/3 from its 2011 peak, he remains very bullish. If he ever turns bearish, I shall duly write about it, because surely that will be a leading indicator to go long.
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If he comes onto the app and goes short (sells) Silver, I shall click on the ‘Oppose’ button and go long (buy)!
As to whether Copper can keep up its momentum over the coming months, I expect it to drift lower from its $303 current price towards the $280 mark, as the Chinese senior executive are in my mind likely to put the dampers slightly on their economy at their upcoming 5-year shindig.
And in terms of my predictions from two months back regarding things that shine, my call that Gold and Silver would continue to rise gently over the rest of the summer proved unfounded, as they have declined by 1% since early August. My prediction that the Platinum / Palladium ratio would break down below parity has proved on the money. A relative 8% move in favour of Palladium over Platinum has seen the ratio move below 1 for the first time in 16 years to 0.99. I still foresee steady declines in Platinum for the years to come as the global anti-Diesel sentiment continues to snowball, but wouldn’t be surprised to see Platinum gain the upperhand in the short term.
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