Copper: The Perfect Economic Indicator

Discussion in 'Indicators and Charting' started by Adam Smith, May 8, 2017.

  1. Adam Smith

    Adam Smith New Member

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    Copper is an amazingly consistent metal when it comes to gauging a prognosis of the economic health of a region. It has served as a barometer in evaluating the level of economic growth. Although metal traders tend to overlook copper when planning their portfolios, it can be extremely advantageous to a trader as an important indicator, not to mention as a trading commodity. (Information credit: easyMarkets)

    You may ask yourself why it is important. Copper has been the main ingredient for production in major industrial sectors for generations. From wiring to plumbing to radiators and even air conditioners have requirements for copper. Generally, copper is comparatively much less expensive and extremely plentiful. It has numerous important properties like corrosion resistance, conductors of both heat and electricity.

    To fully understand how copper reflects the economic status of a region, we need to understand the nature of demand of copper. As it is an industrial metal, the rapid industrialization and digitalisation in economies, especially that of developing countries increases its wide range and global appeal even further.

    So what is the connection between growth of industries and overall economic growth? Well, in simple words, this dramatic rise of demand for copper increases the demand for new mines and plants as well as the expansion of existing ones. This in turn tends to the development of infrastructure in which copper serves as a building block. It can be seen thereafter, that the overall standard of living of a particular region has increased.

    Copper serves as an important economic indicator because of its close proximity with trends in supply and demand. Investors use them to adjust trading strategies for future market conditions. It is also an important factor in shaping the monetary policy of a region. Copper prices also tend to be affected, when stakeholders try to estimate demand for copper in the future.

    So in closing, copper has a correlation with numerous indicators that are relevant for tracking the economy. The short term trends in copper price can be influenced by both investor sentiment and external factors. On the other hand, long term trends are driven by fundamentals. As a trader, one has to look out for financial pitfalls and market downslides so that he or she can safeguard against such conditions. Copper can be the indicator that makes the difference. High copper prices correlate strongly with the health of the housing industry, infrastructure spending, and manufacturing sectors. In a nutshell, increase in price of copper is good news, while decrease in price is bad news from the economic aspect.
     
    Last edited by a moderator: May 8, 2017

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