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| Daily Jurojin - Monday, June 1, 2009 |
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Monday, June 1, 2009 Precious metalsThey used to say that if you wanted to know how the economy was doing, then you should just ask Dr. Copper. You see, Dr. Copper is the guy most closely wired to what's happening within the economy. He's pretty clued in and conducts his business pretty well.In fact, if you were to look at a chart of U.S. building permits or new housing starts and overlay it with the price of copper it would reveal a hand-in-glove-like fit. However, you make want to vomit as the chart points down after 2006 for both series. The average new home is built using 439 pounds of copper of which 195 pounds are used for electrical wiring. Of course the manufacturing sector of the economy uses plenty as a matter of course. Copper would still need to rise by more than 50% to get close to $4.00 per pound, yet Friday's $2.1980 closing price is pushing awfully close to a six-month high. Yet, the latest data on mortgage delinquencies and foreclosures is the worst on record, meaning investors are rethinking the recent share price rally in homebuilders. They are simply premature in believing a robust market will return anytime soon. The rise in bond yields last week highlighted the drop in demand for mortgage refinancing as homeowners gulped at the prospects of rising yields making the decision to refinance a marginal one at best. As more investors were blinded by the prospects of the size of the treasury's appetite for bond issuance, they suddenly walked away from bonds last week leaving the government facing the prospect of doing its own domestic refinancing at far less favorable rates. The dollar suffered with the euro rising above $1.41 for the first time this year as more investors turned their backs to the dollar. Herein lies the rationale for rising copper and other commodity prices. You can no longer assume that because copper's price is rising that housing is returning to normal. Rather you need to look at what's happening to the greenback, indeed if you can see it just beneath the surface of the water. A lower dollar is arousing more suspicion that the world is going to the dogs. Foreign investors are looking for security of capital elsewhere and the signs of a pick up in demand in the Asian Pacific region has them betting that China's appetite for commodities will rise first and fastest as it seeks to diversify away from U.S. treasuries without exiting from government debt. Gold and silver have been doing very well too. Gold is the ultimate hedge whose value is expected to rise in times of rising or falling inflation. As the dollar falls, its price is heading closer and closer to $1,000 per ounce, above which point it rose during the financial panic. Silver too, used for both industrial and as a semi precious silverware is also on a tear of late. Judging by some sizeable derivatives trades reported by Reuters news on Friday surrounding options on exchange traded funds in the precious metals markets, it would appear that some investors are taking the dollar's demise over the edge of the waterfall extremely seriously. The Supreme Council of the Secret Order of Jurojin |
