The Fight for This Obscure Copper Mine in Peru Is Your First Major Buy Signal
Most of the world isn't watching.
But they should be.
When you have giant private equity firms heatedly bidding on a copper mine, that's huge news by itself...
Add in China - the world's biggest commodities consumer, responsible for 40% of the world's copper demand - vying for the same mine, and you could be looking at an explosive spike in copper... and, of course, in the companies that get it out of the ground.
First, here's what's going on...
These Commodities Traders are Hoarding Copper for the Ultimate Profit Play
The only thing that investors have heard recently about the copper market is that there is vast oversupply ahead as evidenced by a buildup in copper warehouse inventories globally.
Inventories at LME (London Metals Exchange) warehouses have risen in excess of 190% since October alone. Inventories are now at levels not seen since 2003 at more than 590,000 tons.
LME inventories are closely watched by traders and economists alike as a key indicator of global economic strength and activity. Normally, such rising levels of copper in warehouses would be a flashing red light warning about economic weakness ahead globally.
According to the Commodity Futures Trading Commission (CFTC), traders have jumped on this inventory number and have accumulated the highest level of net short positions on copper in over six months.
How a Massive Landslide Shifts Copper Supply
The U.S. mining industry was dealt a devastating blow as Kennecott Utah Copper's Bingham Canyon Mine experienced a pit wall failure causing a massive landslide with rocks and dirt covering the bottom of the mine pit. It's a miracle no one was hurt due to the vigilance of its owner, Rio Tinto.
Brian Hicks, portfolio manager of the Global Resources Fund, is very familiar with the mine, having visited it often. He also has personal ties as both of his grandfathers were once employed by the mine. When Brian saw the photo of the landslide posted on the web, he said the substantial destruction of the collapsed wall and falling rock was apparent, yet the tremendous scale and magnitude of the mine cannot be captured in pixels.
How to Double Your Money by Investing in Copper
Copper prices are up 170% over the past four years - meaning huge profits for anyone who has been investing in copper.
But now many investors are bailing on the red metal. Prices have slipped about 9% this year, and inventories are soaring.
Copper prices hit an eight-month low today (Wednesday) as slowing economic growth has led speculators to take more short positions on the metal.
Copper inventories also appear to signal low demand. Stockpiles of the red metal in the London Metals Exchange are at the highest level since October 2003.
But what appear to be bearish signals for investing in copper are not the case. Here's what investors need to understand...
Investing in Copper: Why Prices Will Rebound in 2013
If you're considering investing in copper, you need to know what's happening in China right now.
The country's extraordinary growth spurt - and the resulting surge in demand for copper - will create a global shortage of the metal this year, likely driving up prices. Copper is currently trading around $3.50 a pound.
Indeed, the real demand story for copper continues to be in emerging markets, particularly in China, which is responsible for about 40% of global consumption of the metal.
Last year, China's imports of refined copper hit a record high 3.4 million metric tons, according to the General Administration of Customs in China. This figure surpassed the previous high of 3.19 million metric tons, set in 2009 during the stimulus following the 2008 financial crisis.
QE3 Is Strong Medicine for Dr. Copper
With QE3, Ben Bernanke just gave Dr. Copper a shot in the arm that should carry prices to new highs.
In fact, shortly after the U.S. Federal Reserve announced its decision to launch a third round of bond buying, copper rallied to $3.84 a pound on the Comex division of the New York Mercantile Exchange, up from around $3.35 in mid-August.
But that is only part of the story...
As "the only metal with a Ph.D. in economics' because of its widespread use in industrial applications copper is an excellent bellwether for the state of global economic activity.
And right now copper is predicting a major global rebound.
"Investors' expectations for global economic growth in the fourth quarter are rising and Dr. Copper is rallying," Andrew Rosenberger, senior portfolio manager at Brinker Capital told MarketWatch.
"Copper and other assets which are linked to global growth are taking the approach of rally now, ask questions later," he said.
For investors, there are lots of reasons to like copper right now.
Let's take a look...
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The Dumb Money Hates Silver, it’s Time to Go Long
Speculators hate silver...
For the past year, the positive silver headlines have been few and far between.
Ever since the poor man's gold peaked near $50 in April of last year, it's become a despised metal.
Admittedly, it's been languishing near $27 since early May not far from where it was for the first time - in this bull market - back in late 2010.
But as I'll show you, right now a number of technical, seasonal, and sentiment indicators are pointing upwards for this volatile metal.
This could well be the critical turning point silver investors have been waiting for. One of these indicators is the resilient price of gold.
Let me explain.
The Silver/Gold RatioSilver has always pretty much been gold's lapdog and on a relatively short leash at that.
As a rule, silver prices usually follow the direction of gold. But as long time silver investors recognize, the moves are amplified both on the downside and the upside. Silver prices are simply more volatile than gold prices.
As for gold, since it peaked about a year ago, it seems to be drifting aimlessly in zombie land. For the better part of the year it's been consolidating about 16% below its previous peak of $1,900.
Today, at $1,600, gold is back to levels its first saw a whole year ago. What investors need to pay attention to is the gold to silver ratio.
Silver Prices: Metals Rise on Hopes of QE3
Fresh weak economic data and comments from Federal Reserve Chairman Ben Bernanke have stoked hopes that another round of quantitative easing is on the horizon. Those expectations gave gold and silver prices a boost this week.
Glum retail sales numbers released from the Commerce Department on Monday and high initial jobless claims on Thursday fueled optimism of QE3 despite the lack of hints from the central bank chief earlier in the week. But, Bernanke and his team have clearly left the option of QE3 on the table and stand ready to intervene when they see fit.
The markets' recent spate of lackluster financial reports and escalating concerns over the waning global economy are suggesting a pressing need for QE3 - sooner rather than later.
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