Sorry Guys, but You Are Watching the Wrong Metal


"Large speculators are now short more copper contracts than at any point over the last five years. . .right before copper jumped approximately 50%."

I don't mean to disrespect my colleagues, but I have an even better play in the metals market than gold. I know the gold bugs are clamoring with the yellow metal hitting $1,000 an ounce on February 20, but I have to say I think there is a better play in the metals market.

No, it's not silver or platinum. I am talking about one of the most useful yet underappreciated metals on the planet. You got it—it's copper.

Copper has taken a hit over the last year, but it has fallen harder than any of the other metals, and if there is a market that has gone too far to the downside, copper would be it.

Large speculators are now short more copper contracts than at any point over the last five years. The last time this crowd was close to being this bearish on copper was in early 2007, and that was right before copper jumped approximately 50%.

Now I agree with the other experts that gold is a great hedging investment against inflation, and given the way the government is working the printing press these days, we know inflation is coming. For the long haul, gold is likely to rise.

But gold isn't the only metal that rises with inflation; copper does as well. I also like copper because it is a long way from its all-time high, unlike gold.

The price of copper peaked out at just over $4.00 per pound in 2008 and has since dropped over 60%. Copper has found support in the $1.25 range and looks poised to rally sharply over the next 6–12 months.

Now, if copper were to jump up over the next year or so to challenge that all-time, it would represent a jump of 170%. Now for gold to jump 170%, it would have to move from the $1,000 an ounce level to $2,700 level. Which do you think is more likely, gold jumping $1,700 an ounce or copper jumping $2.50 per pound?

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