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Will Copper Replace Gold as World’s “Most Valuable” Metal?
Did you know that the Statue of Liberty is clad in 60,000 pounds of copper; that U.S. coins are mostly copper (92%); that copper consumption is the key metal that keeps the world economy humming; that copper has grown at an average annual rate of 4% since 1900 – yes, at an average annual rate of 4% for over 100 years running? Be that as it may, however, nearly everyone prefers gold – it’s valuable, even seductive and some would say mystical – even though copper may become a better inflation hedge and strategic asset in the future. Why is that? Submitted by: www.stockhouse.com; Words: 805
In further edited excerpts from the original article* Peter Krauth (www.moneymorning.com) goes on to say:
For thousands of years gold’s most enduring role has arguably been in the form of money – as a store of value. Despite gold’s much longer history as true money, however, some believe that copper – the much humbler metal – could be positioning itself to upstage gold.
China’s Role in Upsurge in Copper
If copper is to replace gold as the world’s most-valuable metal, China will have to play a huge role. Today, China sits atop a paper Everest, with foreign-currency reserves worth more than $2.4 trillion. No public financial institution boasts that degree of financial-asset firepower. Of that total, more than $800 billion is held in U.S. debt.
A war chest of this size serves as a great insurance policy during tough economic times. The trouble is that China is painfully aware of the damage that U.S. dollar inflation will inflict on that massive hoard of greenbacks with Luo Ping, a director general at the China Banking Regulatory Commission on record as saying: “We hate you guys. Once you start issuing $1 to $2 trillion… we know the dollar is going to depreciate, so we hate you guys, but there is nothing we can do.”
What Luo Ping said is not completely true – there are some things that China can, and is, doing. It recently announced that its official gold reserves had catapulted by 76% by quietly becoming the world’s largest gold producer and buying up all that it produced.
China to Use Copper to Leverage its Developmment and Diversification
No doubt China will continue to covet gold, but with such a large reserve (a world market share of 38%) in dire need of both diversification and securitization, this emerging global superpower has set its sights on other tangibles. Let’s face it, the gold supply is small, and China needs resources of all kinds. As such, it makes perfect sense for Beijing to trade holdings it has too much of – like U.S. Treasuries, for example – for assets China needs more of, like copper. There are multiple benefits to this strategy, too: not only is China swapping a holding whose value is declining (dollar-based holdings) for a tangible asset whose value is on the rise (copper), it’s also getting (in copper) an asset that’s central to its ongoing infrastructure build-out.
Furthermore, some believe that China’s actions reflect a new strategy since this acquisition binge goes way beyond national consumption requirements and could be sustained for some time. It could be that copper will be used to back a currency but it is also necessary for the modernization of China and could even propel China into the lead in the next wave of automobile technologies – both electric and hybrid.
Why is the Price of Copper Still So High?
Commodities traders often refer to this all-important non-ferrous metal as “Dr. Copper.” Its price and supply/demand characteristics are widely assumed to reflect the health of the world industrial economy, hence its “Ph.D. in Economics.”
Given that reputation as an excellent barometer, it’s tough to understand just what’s keeping copper prices high (up 226% in 2009) but here are a couple of reasons:
1. Hedge funds are taking physical positions in the metal, rather than through futures contracts, due to concerns the Commodity Futures Trading Commission (CFTC) will bring in position limits.
2. China’s State Reserves Bureau has purchased large amounts of copper, pushing the nation’s year-over-year imports up by 63%.
Longer-term View
I am convinced that we are still relatively early in a secular commodity bull market. In fact, with the modernization of Chindia and numerous other less-developed nations, I expect this bull market will be one for the record books. Fundamental demand coupled with inflation will push resource prices to unimaginable heights.
*http://www.stockhouse.com/Columnists/2010/Feb/10/Copper-could-be-positioning-itself-to-upstage-gold
*http://moneymorning.com/2010/02/09/copper-new-gold/
Editor’s Note:
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given.
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Posted by Editor on Feb 11 2010, With 0 Reads, Filed under Other Commodities. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.
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