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Stock market lingoists will tell you that the 29th element on the periodic table is dubbed “Dr. Copper.” That’s not because the malleable metal is good for your health, but because its predictive capabilities are allegedly so strong that it should hold a PhD in economics.
As goes the global economy, so goes the price of copper, which is used in just about every manufactured good that human beings make these days. As a result, you might think this week’s rally in copper is a sign that the global economy has at last turned a corner.
You might be wrong.
Until the recent rally, the good doctor had spent the summer looking more like a patient on life support than a healer. Copper futures on the Comex in New York had been hit hard over continuing concerns about the slowing economy in China, which consumes about 40 per cent of global supply, and eventually reached US$2.25 a pound on August 26, the lowest level this decade.
Since then, however, copper has staged a remarkable rebound. The most dramatic signs of life came early this week. On Tuesday, futures rose more than five per cent, the biggest one-day gain in years.
Following suit, the commodities-heavy Canadian market sat up in its own hospital bed. Coming off an August that was depressing by any standard, the S&P/TSX composite reversed and gained more than a percentage point on Tuesday.
Mining companies were huge beneficiaries of the change in sentiment, gaining almost nine per cent. Base metal producers Lundin Mining Corp. and First Quantum Minerals Ltd. rose by 9.5 and 22.9 per cent, respectively.
There were two big factors that drove this apparent sea change, but you have to question how much impact they will have beyond the short term. Indeed, by Wednesday, it looked like the “rally” had already petered out. Copper futures flattened out, and the S&P/TSX gave back much of its gains.
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