Solid Copper Proof

Written By Luke Burgess

Posted May 9, 2006

Copper prices took a break today from a bull run that has pushed up prices nearly 75% since the beginning of the year.

Driven by demand in burgeoning nations like China and India, prices have tripled since 2002.

By noon yesterday, copper was trading at $3.46 a pound. Take a look:

The near vertical climb over the past two months on an increasingly thin volume is beginning to attract calls for a price correction. Nevertheless, many people believe that the industrial metal still has room to grow.

Global copper supplies are tight, demand is strong, and producer stocks are at ridiculously low levels. So, few investors are ready to start aggressively shorting the market.

Last week, copper increased 7.5% and topped off at an all time high of $3.55 per pound.

We’ll probably see a significant correction in the coming weeks, but the long-term picture still looks good.

The Trend is Everyone’s Friend — Including Thieves

The burglar’s of yesterday were only interested in fancy jewelry, expensive TVs and electronics, and any stray cash laying around a house. But nowadays, metals for scrap are exploding in popularity among street-level bandits.

What are they after? You got it — anything made of copper. Copper pipes, gutters, flashing, boilers, wires or sheets, all can be sold for scrap.

In the Buffalo, NY area alone, more that 80 reports of copper theft have been received by local police in the past year

With the demand and value of copper rising, the metal, commonly used for household plumbing, is being looted from vacant city homes and construction sites and then being sold to scrap yards for a hefty profit.

This is proof of a commodity bull market if I’ve ever seen one.

Buffett Bullish on Copper

In 1998 Warren Buffett bought 129.7 million ounces of silver for $6 an ounce. At the time that was a fifth of the world’s mine supply.

But on Saturday, he told Berkshire Hathaway (NYSE:BRK-A) shareholders that he has sold his silver holdings.

During the company’s annual meeting, Buffett declared, “We had a lot of silver at one time, but we don’t have it now.”

Instead, he noted, “something like copper is speculative on both sides of the market–you are looking at market that’s responding more to speculative than fundamental forces.”

Penny Update

Back in March, I wrote to you about the true value of a penny, where I explained how much the copper in a penny is actually worth.

At that time, copper was trading around $2.42 per pound. But now that copper is over a dollar more expensive, I thought I’d update you on the true value of a penny with today’s prices.

With copper at $3.50 a pound, the 2.888 grams of copper in a pre-1982 penny is worth $0.022! So a pre-1982 penny is really worth over two cents.

But like I told you before, you’d be hard pressed to find enough pre-1982 pennies to melt down to make a profit. However, if copper prices continue to increase as they have, we may begin to see people collecting and trading the 95% pure copper pennies the way older silver coins are collected and traded today. I’m still bullish on pennies.

– Luke Burgess

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