Who’s right, commodities or the Fed?
Either these commodities are about the turn the corner as renewed strength in the United States–the biggest buyer of commodities next to China–revives industrial metal and crude oil demand–or the Federal Reserve is misreading the tea leaves and crashing commodity prices signal a world and U.S. economy in distress.
Market analysts like to say that copper is the metal with a Ph.D. in economics. Because of copper’s central role in the modern economy, it often reliably forecasts the direction of the economy. Since copper reached its peak at the beginning of 2011 above $4.50 per pound, it has swooned to near $3 in 2011 coinciding with a crisis in Europe, bounced back to near $4 once the crisis passed and then settled above $3 by the middle of 2013 where it essentially traded sideways until this year. After trending down since May copper hit $2.05 a pound last week, only three cents above the low for the year registered on November 23.
And, it wasn’t just copper. Nickel started the year above $7 a pound and finished last week at $3.90 a pound. Aluminum began the year above 90 cents a pound and settled last week at 67 cents. Zinc peaked near $1.10 a pound in May and now sells for 66 cents. Iron ore prices, which dropped almost 50 percent last year, this year dropped from $68 per ton to $47 as of last week, another 31 percent decline.
Crude oil, which dropped about 50 percent in the last half of 2014, has dropped another 35 percent so far in 2015.
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