January 22, 2015

One of the most interesting aspects of the recent steep downward trend in the copper price is that it occurred in parallel with a rising trend in the gold price. This doesn’t guarantee anything, but it is consistent with what should be happening if the commodity markets have begun the transition from cyclical bear to cyclical bull.

By way of explanation, long-term broad-based rising trends in commodity prices are always driven by bad monetary policy. A consequence is that gold, due to its nature, will generally turn higher in advance of most other commodities. In effect, there are no long-term broad-based commodity bull markets, just gold bull markets that most commodities end up participating in.

A good example occurred during 2001-2002. As illustrated by the chart displayed directly below, in 2001 the copper price continued to trend downward for 7-8 months and fell by more than 20% after gold’s price trend reversed upward.¬†

gold_copper_2001_220115

As illustrated by the next¬†chart, there was a ‘head fake’ during the first quarter of last year, with gold rising while the copper price tanked. A similar situation has developed since early-November.

gold_copper_220115

If gold bottomed on a long-term basis last November, then copper should do the same within the next few months.

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