Watching Copper

[shinnosuke]

http://www.zerohedge.com/news/guest-post-forget-gold%E2%80%94what-matters-copper

[68Camaro]

Thanks for the reference, bro. I skimmed it, as well as the other blog noted within the comments. I'm not sure why there is any surprise that copper falls in a global recessionary climate. I wouldn't want to be trading copper and dependent on it for daily income now. It will come back up, but it is a distinctly different item than PMs. I'm still stacking copper pennies, and I'm fine with the possibility that there could come a point where the intrinsic value of a copper penny is worth less than a cent, again. Because of what it is it will always be worth at least a cent, and copper will come back up, eventually.

An interesting side effect of the drop in copper might be a drop in gold and silver production. Much of gold and silver production comes from copper mines as a by-product, and is - so I understand - partially dependent on the cash flow from the copper production. They all subsidize each other, and the total price yield for all commodity metals (including lead, zinc, whatever the mine produces) needs to be high enough to make the mine worthwhile. All those mines that yield low levels of gold and silver as a by-product of copper production, and depend on copper price being above a certain level to be profitable, they will be in trouble - the may have to shut down, which may affect the amount of gold and silver available later.

[Sheikh_yer_Bu'Tay]

Thanks, Shinn-san, for the article. I buy the logic and am preparing for the downturn. Been here before in the mid-80's. If it's only 9 to 18 months, we will be lucky. The gurus I was listening to a year ago said the BRIC countries and their satellite nations would continue to produce in-spite of a Western slow-down. Why? Because of the retail development of their own markets. They would re-tool to produce for their own internal markets, instead of producing for us.

If I were in charge of the money in one of those BRIC nations and flush with billions, or trillions of FRN's..... I would plan to buy up as many important commodities as I could with the FRN's before it lost even more buying power. Buy up mine productions, etc. The West has exhausted itself via over-regulation and ever changing laws. The 21st century will be an Asian century.

Camero is right. The drop in mine production of base metals like copper will make PM's even more scarce. Their prices should go up, and up a lot, with the further devaluation of FRN's and less PM's to go around.

[shinnosuke]

Back in late February I wrote this:

There are some other things to factor into the formula of what nickels and pre-1982 pennies might be worth if things get really bad. The price for precious and base metals is partially determined by the value of the US $ and partially by demand.

If the economy is similar or worse to what the world experienced in the 1930s, unemployed people will not buy durable goods. Demand for the metals that are used in the manufacture of those items will drop precipitously and with that drop in demand we will see a corresponding reduction in price. However, on the other hand, the US dollar will be seen for the worthless fiat currency that it is and prices will go up.

Which factor will be the more influential of the two? Which will have the heavier weighting in our formula?

7 months down the road, I still think inflation is the greater danger, not deflation. But it mattereth not to me. Metals are still the better store of value, regardles of the flavor of your flation.

It will be interesting to see what happens in Asia in a few more hours. Continuation of the trend? A reversal?