As if the recent turmoil in Turkey, South Africa, and other emerging markets wasn’t enough, commodities including copper are now sinking as well. Copper, which is known as “the metal with a PhD in economics” due to its historic tendency to lead the global economy, is down nearly 4 percent today alone and 22 percent since early-June. Copper’s bear market of the past couple months is worrisome because it signals that a global economic slowdown is likely ahead.
The chart below shows how copper was bouncing around in a range between $3 and $3.3 per pound until it peaked and broke down in June:
The longer-term chart shows how copper surged after Donald Trump’s election win (due to expectations of an infrastructure boom), climbed within a channel pattern, and then broke down from the channel in late-2017. The $2 per pound support is the next major level to watch if copper’s bearish trend continues.
Copper and other base metals are falling for a wide variety of reasons including the plunge in Turkey and other emerging markets, the strengthening U.S. dollar, and China’s economic slowdown due to the trade war. If the dollar continues to rise and the emerging markets turmoil spreads (which I ultimately expect to happen), there is a high likelihood that copper will continue its downward trend.
Lance Roberts is a Chief Portfolio Strategist/Economist for RIA Advisors. He is also the host of “The Lance Roberts Podcast” and Chief Editor of the “Real Investment Advice” website and author of “Real Investment Daily” blog and “Real Investment Report“. Follow Lance on Facebook, Twitter, Linked-In and YouTube