Investing in Precious Metals: Is Copper Leading Gold and Silver Again?

July 12, 2011

The Dow and S&P 500 both closed in the red on Monday.  The U.S. Dollar and gold rallied, as silver fell back below $36 an ounce.  With the jobs picture remaining dismal, via the latest unemployment data, copper has also been falling. There seems to be a past correlation between copper, gold, and silver.  However, as copper losses steam, this correlation could come into question.

Copper is often referred to as Dr. Copper, because of its ability to give insight to the future of the global economy. Last July, copper started a huge breakout move.  This breakout move continued for the rest of 2010 and into 2011.  Shortly after copper’s breakout move, gold and silver started a big move of their own.  Gold and silver made their significant moves from August 2010 to May 2011.

 

If copper is to be thought of a leading indicator of gold and silver in 2011, like it was last year, then copper’s uptrend will need to continue.  However, copper’s rally is in serious jeopardy.  On Monday, copper prices fell the most in five weeks, as copper futures for September delivery declined 1.6% to $4.3425.  Big copper names such as Freeport-McMoRan and Southern Copper Corp fell 3.30% and 3.25% respectively.  If copper fails to maintain its rally, all is not lost for gold and silver .  Strong demand fundamentals remain for both metals as inflation fears take hold around the world.  For example, when compared to last year’s second quarter, gold and silver imports for India rose 200% in the second quarter of 2011.

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Disclosure: Long AGQ.