dinsdag 15 januari 2013

Copper Contango Keeps Steepening

There doesn't seem to come an end to it. The copper contango keeps steepening to 2.5% for 1 year futures, while the copper price remains steady.

If all goes as planned, we will see a huge copper and stock market rally in the future. Probably helped by good Chinese numbers. China's trade surplus surged 48% in 2012, its exports jumped 14% and its non-manufacturing PMI rises to a new high of 56.1. China has even so much money left over to double its gold purchases in November 2012.

If China does well, commodities will do well. The only asset that will underperform is U.S. bonds. Just recently, China's sovereign wealth fund had even opted to back off in buying U.S. treasuries and putting more into stocks and real assets.

Chart 1: Copper Contango Vs. Price

I would recommend people to continue buying gold, or rather: platinum. I predicted that platinum would surge against gold and it has come to fruition. Platinum has now reached parity with gold and I forecast that we will continue to go higher in platinum against gold until the historic platinum to gold ratio of 1.2 has been reached. The main catalyst is a 7% global platinum production cut recently announced by Anglo American Platinum.

Chart 2: Platinum to Gold Ratio

5 opmerkingen:

  1. The price of Copper continues to drift downwards ($3.59/lb) as Level of LME wharehouse stocks increases.

    It is not clear what is happening to the copper market at the moment. Although the outlook for copper demand is good (e.g. China PMI indicates that industrial output is increasing at faster rate), the demand for finished good has been depressed by the financial crisis in Europe, where industrial growth is slowing, even in Germany.

    My guess is the improved China PMI is not the only factor at work: perhaps the Chinese domestic demand for copper is weak due to a slowdown in construction and infrastructure projects.

    It might be worth seeing if there is any correlations between the copper contango and the growth of coppers stocks in LME wharehouses around the world.

    1. The question is, how do I get the level of all warehouses around the world in one chart?

  2. You can see the LME stock levels in the link I have provided (above). Interestingly, LME stocks stopped inreasing on Jan 17th. Although this is not a sign that a new trend has set just yet, if stocks decline significantly, the price of $3.59/lb at that date could mark the point where the copper price bottoms out. If the market is about to turn, maybe your prediction that the copper price is about to rise sharply will happen soon.

    1. We will see what tomorrow's contango report brings. I'm just a little bit troubled by Marc Faber's prediction that stocks will decline 20% and bonds will rise in value. That also means copper won't do well.

  3. Contango is a futures market term: it means an upward sloping forward curve.
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