Copper is often called “Dr. Copper” because of its ability to turn higher or lower in advance of turns in the broader economy. It almost seems like it has a Ph.D in economics – hence the moniker. Thus, some investors use copper prices as a sort of thermometer to get a sense of where the economy is headed. But when it comes to explaining the powerful momentum behind copper prices, most economists might be chagrined to find out that the laws of supply and demand do not seem to be working.

Many observers seem content to just offer “Chinese consumption” as an explanation for all things related to commodity price increases and leave it at that. Over time, we have tried to highlight the weaknesses of this blanket explanation. There seems to be a large amount of data that shows Chinese copper purchases are ending up as inventory for future use or speculators are building positions for investment purposes.

Last year, we devoted our July 30th comments in the Financial Post to an article titled: ”China: Do Risks Outweigh the Rewards (Again)?” Only five days later, the Chinese stock market topped out and has lost almost 20% of its value since then. We have felt that investors are not looking at the whole picture when it comes to commodities and the risks are real.

Just recently, Bloomberg 

Read More