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Betting on Copper's Rebound

Written By Brian Hicks

Posted May 22, 2013

Investors and analysts alike have held on to hopes that copper might rebound in the near future for quite some time now, especially given the fact that the metal hasn’t had an exquisite run in recent months.

And it wasn’t all for naught. According to McAlvany Financial Group CEO David McAlvany, copper could indeed be on its way back towards an upturn.

copperringsIn an interview with CNBC, McAlvany made remarks about the short-term future for copper and how it relates to the rising S&P. As far as the CEO is concerned, something is awry either with copper or the S&P, and it’s likely that the former will see a rise and the latter will fall slightly soon.

“Either copper is going to play catch up and move up 10, 15 percent or we have the same sort of 10, 15 percent return to earth in terms of the S&P,” says McAlvany.

On Monday, the price of copper rose to $7,399 per ton, the highest level the metal has seen in a week.

“This is I think really a sign of things to come; at least for the next 90 to 120 days,” said McAlvany in the interview

Earlier in the month, copper hit the lowest pricing it has seen in 18 months, falling below $6,800 per ton. The metal is still 13% down from February highs, even though it has recovered since the slump it hit earlier in May.

With the S&P up 25% from where it was a year ago, however, many people are having difficulty connecting the dots. For McAlvany, the S&P is currently sitting at a level that is less than realistic, and copper is lower at the moment than it’s likely to be in the near future.

Metals in Flux

Copper isn’t the only metal that has been in flux as of late. Gold and silver have both had somewhat of a tumultuous start to the year, with many analysts unsure as to whether they should take a bullish or bearish stance on either of them.

The instability of the world’s economy certainly hasn’t make it easier to predict where metals will go, especially given the fact that America has actually seen improving economic numbers recently.

While gold and silver have surely had trouble finding stability, copper finds itself right there with the two precious metals. With fears over a potentially lackluster period in the Chinese economy, it has been unclear lately as to whether or not the country is likely to increase its buying of the metal, commonly used in industrial applications. If China is able to stick to plans for rapid urbanization, however, it should stand to reason that copper will once again be on the rise.

Numbers haven’t been anything near stellar in recent months and weeks, however. Chinese imports of the metal are down 33% from this time last year, which has affected the industry in a variety of ways.

The metal has not only lost value, but mining companies are also facing a great deal of trials in attempting to remain afloat. This has had a direct effect on investors who focus on companies specializing in mining operations, and it has caused many to sell out of fear that stocks could fall even lower.

A Hopeful Future

As McAlvany has pointed out, not all hope is lost for copper. The metal looks to be set up for the longest rally it has seen since January, directly affected by an accident at one of the world’s major mining sites in Indonesia.

Fears over a shortened supply stemming from the accident have caused the metal’s price to firm up, and it will likely continue to have an impact on future pricing.

The strength of the dollar is also having an effect on copper. When the dollar weakens, metals such as copper often rise in price, which is exactly what analysts believe will happen in the near future.

It’s too early to tell whether or not the dollar will continue to weaken or if it will see a resurgence, but even an initial period of weakening can inevitably help to move copper in a forward direction – at least for the next 90 to 120 days.


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