Historically, the price of copper was a good indicator of the overall health of the US economy. In fact, you can bet on any potential uptick in the broader US economy based on the improving fortunes of the price of copper. This worked like clockwork for many decades. Interestingly enough, ever since 2013, there has been a divergence between the performance of the global price of copper and the US economy, as measured by major stock indices. It appears that, as American stocks improve and spike up, the price of copper continues to slump. There seems to be a big disconnect here.
There are a lot of reasons for this. The most obvious reason is the fact that a lot of the activities and the overheating in American stock values are due to artificial government fiscal measures like the US Federal Reserve’s quantitative easing program. If you have all this money printed out by the US government to buy private and public bonds, you release a lot of liquidity into the market. This then pumps up the value of stocks. This doesn’t necessarily reflect the health of the underlying economy.
Another reason for the slump in copper’s price is the fact that the major buyers of copper, like China, are going through an economic downturn. This has led some market analysts to say that copper’s predictive value only applies to international players and it doesn’t apply to the US stock market. I beg to differ. We live in very interesting times as far as the real health of the US economy is concerned. A lot of the seemingly good fortune of the stock market is due to artificial forces unleashed by government interference. Once that bubble bursts, I strongly suspect that copper will once again track the real health of the US economy.