dinsdag 19 maart 2013

Copper Contango Experiment

One of the data that can't be wiped out from my computer is the Copper Contango Experiment.

We see that the contango is widening each day, while copper price is declining. That is a normal thing.

Once the contango reverses, we will see a spike in copper. I don't know when it will reverse though.

Historically we need to go as high as 2-10% contango to mark a bottom in copper price as I pointed out here. Today we are at 0.04/3.5 = 1.1%. So there is still a ways to go.

3 opmerkingen:

  1. Copper held at COMEX and LME warehousing is still rising, so the Contango is likely to increase further.

    When will the trend reverse? Maybe some optimistic PMI figures from China might indicate that inventory is set to fall....

    1. Also, how is inflation and money supply integrated in this? It could be that inventories stay the same or increase, but the dollar collapses.

      The economy can be collapsing, while the money supply explodes. Just like what happened with the peso in Mexico. Stocks went up multiple times while they were in hyperinflation.

      So we can have a bad economy and still have rising copper prices.

  2. The US Dollar is unlikely to collapse because of capital inflows from China, whose central bank is still buying US T-Bonds in vast quanties, so there isn't an over supply of cash in the system as your analysis suggests.

    The price of copper seems to be driven by a combination of rising production and weak demand: have a look at this analysis from Barclays Bank:
    LME Copper inventories and the price of copper.

    Note that copper at $8,500 per tonne equates to $3.86/lb.