Copper was a stellar performer in the last week, rising 5.16% since last Thursday and is currently trading at $3.4750 an ounce.
There were two main catalysts that led opper prices to gain in the last week. The first came after Fed Chairman Ben Bernanke made an address at the Kansas City Federal Reserve economic conference where he reassured investors that the Fed would do whatever was necessary to avoid a double-dip recession and fight deflation. This sent equity markets soaring and revived hope that the US economy would continue to see growth under Mr Bernanke’s watchful eye. Copper tends to track closely with economic growth as the metal is primarily used in construction and industrial production. The second springboard for copper came on Wednesday when investors received a double whammy of positive surprises in the manufacturing sector in the world’s two biggest economies. The ISM Manufacturing Index showed an unexpected increase in manufacturing growth in the US during August, while China reported a larger-than-anticipated rise in manufacturing activity during the same month. This latest gauge is likely to support copper prices in the short-term as manufacturing growth has a direct impact on copper demand.
The longer term prospects for copper are quite compelling. If global growth picks up next year as many economists are forecasting, there should be strong demand for copper as developing nations accelerate construction. Even in developed nations, the upgrading of old power grids and the move towards smart grid technology is also likely to boost physical demand for copper which is used extensively in wiring. Copper may see some volatility in the coming months as investors try to determine which way the global economy is heading, however, in my view, any sharp declines in copper may provide a good entry point to take a position for the long term.
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