Copper – What’s It Telling Us?

Despite a global economic slowdown and growing stockpiles at warehouses in China, Copper is looking very strong on the charts and prices are now at 4-month highs (another reason we are bullish at the moment with regard to the Venture Exchange which tends to follow Copper)…the metal has erased year-to-date losses of 5% seen in June to post gains of more than 5%, most of which has been added here in September thanks in large part to actions from the European Central Bank and speculation of QE3 from the Federal Reserve…given how the Canadian Dollar has been behaving over the past couple of months, as shown in our chart yesterday, it seems markets are anticipating higher inflation down the road which is bullish for Copper and all commodities and even equities – particularly if central banks are forced to keep interest rates at historical lows…given a choice, due to debt levels, Ben Bernanke and other central bank leaders would take inflation over deflation…

Below is an updated 2.5-year weekly chart that shows how Copper has broken out of a symmetrical triangle and appears ready to test resistance around $3.90 a pound…

Meanwhile, the stacks of Copper slabs inside warehouses in Shanghai continue to pile up as reported in an excellent Wall Street Journal article yesterday (the supply overhang is reported to have increased from 500,000 metric tons in June to 600,000 in July, vs. the approxmate 214,000 metric tons in London Metal Exchange warehouses)…for some, this is a warning sign that demand within China, the biggest buyer of the metal, is decelerating dramatically in what could be a troubling sign for the global economy…even if the added stimulus from around the world sparks rising economic activity, and demand for Copper, some analysts argue it could take months to whittle down the huge Copper surplus lingering in China’s warehouses…while that happens, demand for new Copper from Chinese buyers is likely to remain low…under the pressure of high inventories, “any rally in Copper prices based on expectations will likely not be sustainable,” analysts at Deutsche Bank wrote in an August note…however, it’s important to keep in mind that overall Copper stocks are lower this year than a year ago thanks to a 42% drop in Copper inventories at the LME, according to Scotiabank, while the International Copper Studies Group still expects a 237,000-ton deficit of refined copper in the world this year…many Copper bulls are also counting counting on Chinese government support for the power and housing sectors to help prop up the metal’s prices…