The science of economics tends lean heavily on the art of forecasting future growth trends. Economists have a slew of carefully crafted computer models that are relied upon to forecast the general direction of worldwide economic growth. A more real life predictor of economic trends with a good track record of reliability lies not in computer models, but in the pricing trend of the world's third most widely used metal, copper.
Dr. Copper has consistently forecasted economic slow downs for many years. The reason is due to its primary use in cyclical applications, such as housing and industrial machinery manufacturing. Quite simply, when we are coming out of a cyclical worldwide growth phase, copper prices will begin peaking and then reverse trend.
Technically, copper has formed a double top. This formation generally, but not always, indicates a reverse in trend is about to occur. Fundamentally, copper supplies have fallen due to strikes and production difficulties in key mines throughout the world. Despite the copper supply shortages copper has had difficulty carving out new highs.
If the slow, but growing worldwide economic models that most economists are relying upon are truly accurate, the price of copper will need to confirm by breaking through the double top and resuming its longer term upward trend. Failure to break resistance will be one of the first real life indicators that the entire world economy is likely headed for a recession.
Liquid energy traders will be monitoring Dr. Copper, adjusting long or short positions to stay ahead of economic growth trends.
