The metal’s prices are no more indicative of recession than sunspots or other forms of capitalist divination.
Copper prices have faltered in recent months, prompting prognosticators to revive one of the more tiresome tools of market divination. When copper prices decline, conventional wisdom has it, there’s trouble brewing for the global economy, given the centrality of the metal to so many vital industries.
Copper’s predictive powers have prompted many pundits to dub copper the “only metal with a Ph.D. in economics,” suggesting that this vital commodity has special insights into future booms and busts.
That’s technically correct: Copper has amassed a record of predicting recessions on par with the economics profession — which is to say that it has failed miserably in the forecasting department. It’s next to useless in anticipating future economic developments.
The notion that “Dr. Copper” is a kind of metallic crystal ball rests on some reasonable assumptions. Copper goes into so many different finished goods that its price, unlike the price of more esoteric metals like molybdenum or iridium, reflects the health of a broad cross-section of the global economy. Rising copper prices — and by implication, rising demand for the indispensable metal — signals that the future is bright and shiny.
Conversely, if copper prices decline, that’s a sign that the global economy is losing steam: Lower prices mean faltering demand, which in turn implies that less of the metal is going into capital investments.
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