Copper may stumble, but don't bet against it long term
***Copper may stumble, but don't bet against it long term
***Oil refuses to lie down
***RECOMMENDED ARTICLES: Don't be fooled by the sucker's rally in property... The fall and rise of silver...
It's not just gold and the precious family of metals that are making new highs on a daily basis. Their poorer cousins the base metals, copper, zinc, nickel, aluminium and lead are on the up too.
Copper has hogged the limelight recently due to a disapearing copper trader and the Chinese government's rumoured 200,000 tonne short position.
The copper price has soared 33% this year to $4,200 a tonne on the London Metals Exchange. The latest leg of this price squeeze began on rumours of China's wrong-way bet in the futures market.
A few weeks ago the market got wind of suggestions that the Chinese State Reserve Bureau would be forced to cover a position in copper built up by the government trader Liu Qibing, who has gone missing and is now apparently under house arrest. This has led many to speculate that the price will rise further as they are forced to buy copper to cover their position.
Among those betting are hedge fund managers in the US and UK who have taken aggressive long positions. This has led many to suggest that the current copper price is nothing more than a speculative bubble, and one that could be vulnerable to a correction in the region of 20% any day now.
A correction is a strong possibility - after all we know that markets don't move in straight lines. But trading corrections don't change fundamentals and in this case they are excellent.
Severe supply constraints are still intact. Copper prices have been rising despite slack demand. Strong macroeconomic data, namely GDP growth of over 10% in China, 8% in India, 4% in the US and a recovering Europe, suggest that demand is set to grow. These figures are feeding through into prices, especially as base metal consumers generally remain extremely short of material after large inventory reductions this year.
China's consumption of copper has trebled over a decade. They now consume more than the US and Japan put together. A second wave of cities in China is being rebuilt - or rather hugely expanded - following on from Shanghai and Beijing. The rebuilding of such cities as Nanjing, Chengdu, Wuhan and Tianjin will use up more resources than was used in the first wave, almost no matter what happens to the world economy.
The International Copper Study Group (ISCG) downgraded its supply statisitics again last week amid slowing global output and they anticipate further contraction. Chile, one of the largest global producers, saw its output drop about 6% this year. And it's not just the mines. Limited smelting capacity is further enhancing tightness in supply.
Long term, the story for base metals looks good. The supply will continue to be restricted due to decades of under investment in new mines. It will be years before the benefit of any new expenditure will feed through to the supply.
And just when you thought it was safe to buy yourself an SUV for Christmas the oil price starts heading back up towards $60 a barrel. A 20% crude oil price adjustment since August has brought the oil bears out in force predicting a decline back towards the low forties.
But the price of the black stuff is looking remarkably resilient. Having dipped to $55 a barrel, it's now creeping back up.
The recent falls reflect several factors. Sentiment has been boosted by the end of the hurricane season in the Americas; the US summer driving season has come to an end; Opec has been making lots of noise about not cutting production, and finally a lot of speculative heat has disapeared from oil to find other markets. It's also worth noting that the oil price usually drops around this year and picks up later in the winter.
None of these things begin to affect the basic reason why we are pretty sure oil has entered a long-term bull market: demand is high and supply is constricted. Simple as that.
Turning back to the stock markets...
The FTSE 100 closed 42 points higher at 5,528. Medical devices group Smith & Nephew surged late in the session, up 4% to 539.5p on speculation of a bid from US giant Johnson & Johnson.
Meanwhile, the FTSE 250 closed up 98 at 8,498, another record high. Construction group John Laing rose 16% to 341p as it said it had received an approach, while ports operator P&O, which is being targeted by Dubai's state-owned ports group, leaped 12% to 494p on hopes of a counter-bid from Singapore's government.
Across the Atlantic, US stocks were mixed. US data on jobs growth in November was in line with expectations. The Dow Jones slipped 35 points to 10,877, the S&P 500 was flat at 1,265, and the tech-heavy Nasdaq rose 6 to 2,273.
In Asian trading hours, oil continued to climb, trading just below $60 a barrel in New York, while Brent crude traded at around $56.10 a barrel. Meanwhile, spot gold was trading at around $507 an ounce.
Overnight in Asia, the Nikkei 225 rose 129 points to 15,551, as data showed that capital spending rose by more than expected during the third quarter.
And in the UK later today, Gordon Brown will reveal what he has in store for the UK economy in his Pre-Budget Report.
And our two recommended articles for today...
Don't be fooled by the sucker's rally in property - When it comes to the UK house price crash, Brian Durrant of the Fleet Street Letter has always been a sceptic. He and the team have so far been right in predicting a slowdown, rather than an all-out slump in the market. So that's all the more reason to listen when he says he believes the current pick-up in prices is a dangerous 'sucker's rally' - to find out more, click here: Don't be fooled by the sucker's rally in property.
The fall and rise of silver - Silver has a colourful past, says Kevin Kerr in The Daily Reckoning. Texas oil barons, the Hunt Brothers, tried to corner the market in the 1970s, but after it all went wrong for them, the silver price fell into a hole and stayed there for a long time. To find out more about the Hunt Brothers, and to learn why silver is now making a serious comeback, click here: The fall and rise of silver.