Copper set a new record high today on the London Metals Exchange, closing at $10,190 per metric tonne. In the media this was widely attributed to lower than expected inflation numbers from China (4.9% pa for January compared to 4.6% in December and estimates of 5.4% from a group of economists.
It is comforting to give reasons for every market move because it implies that there is rhyme and reason in the market. Reality is that day to day changes are usually not driven by any one event. Especially considering that copper has been on a tear. Wall Street is listening to the quacking copper ducks.
If you want to be exact, copper didn’t set a record on COMEX. And personally, I don’t think that this will stay the Bank of China’s hand. But in any case, all this reminded me of the copper gold ratio and how it has been shadowing the equity market for some time. I checked in with this indicator to see what it looks like now:
Remarkably, the relationship is holding. The price of copper, in units of gold is continuing to keep pace with the general movements in the S&P 500 index. In this chart it may look like the equity market has broken away (to the upside) but if we look at a shorter time frame, we see the relationship is still there:
I don’t want to appear that I’m suggesting that one can predict the equity market’s every gyration with the copper gold ratio. But generally speaking, they both follow the intermediate trend. This could be total coincidence. Or it could be that copper, as the most widely used commodity metal is telling us that the global economy is on the mend.
Just remember that the bearish case is very alluring as it – almost always – appears more intelligent than the bullish arguments. I’ve already mentioned the technical reasons for the continuing health of the bull market (on an intermediate to longer term), if you missed that, check out The Icarus Market.