|
After my recent
article at the Café entitled “Copper – The Juggernaut”
http://www.lemetropolecafe.com/dospassos.cfm?pid=6008
I was contacted by
Derek Van Artsdalen
who has written a couple of pieces in the Café in 2003 and
2004 related to
copper. Our e-mail exchanges led Derek to ask if there was any
pattern in the
copper price that would indicate how gold might move. The
analysis that this
prompted me to do resulted in a remarkable revelation which I
will share with you.
Figure 1 shows the
gold price (red) and copper price (black) from 1987 to 2007.
 
FIGURE 1
From just a visual
inspection it would appear that there is a correlation between
the prices of copper
and gold. I decided to go a step further by making a
crossplot of the
copper and gold prices to investigate how strong this correlation
really is.
Figure 2 shows the
crossplot of the data covering the period 1979 to 1987 which
includes the last
major bull market in gold. It can be seen that there is a
remarkably strong
correlation between gold and copper prices. A best fit line is
shown along with the
equation of the line. The r-squared value is 0.75 which
confirms a very
strong correlation
COPPER-GOLD Crossplot 1979-1987
FIGURE 2
In figure 3 a crossplot is shown of copper and gold prices from 1995 to 2007.
This plot reveals a
very strong correlation between gold and copper prices for
this 12 year period
with an even higher r-squared coefficient of 0.86.
GOLD-COPPER CROSSPLOT 1995-2007
FIGURE 3
What this study
reveals is that gold and copper prices move in unison and have
done so for the 20
years of data that have been studied here. But just how good
are these
correlations? Of course, we all know that gold and silver move in lock
step with each other
and are, therefore, highly correlated. Figure 4 shows a
cross-plot of gold
and silver data from 1995 to 2007 which confirms the strong
correlation between
gold and silver prices. The r-squared coefficient, however, at
0.83 is comparable
to that of the gold-copper correlation indicating that gold and
copper prices
correlate with each other just as strongly as gold and silver prices!
GOLD -SILVER Crossplot 1995-2007
FIGURE 4
Some analysts have
suggested that the monetary crises that are looming on the
horizon will
necessarily drive the price of gold and silver sky high. But they also
suggest that the
negative implications for the global economy of such monetary
turmoil will lead to
economic recessions that will crimp the demand for an
industrial metal
like copper and its price will fall due to falling demand. What this
study shows is that
there is no historical precedent for such theories. When gold
prices move up,
copper moves up, and when gold prices fall, copper prices fall.
In recent articles I
have concluded that copper is in a strong long term bull
market. It is an
unstoppable juggernaut due to rapidly shrinking above ground
inventories. This
work bolsters that view and shows that copper is just as strong
a beneficiary of
monetary debasement as the traditional precious metals.
Adrian Douglas
Marketforceanalys.com
Adrian Douglas writes many articles
on his observations and analysis on financial markets, gold and silver
markets, and some selected company stocks. The articles were all initially
published at www.lemetropolecafe.com.
| 
