Even though economic growth is down around the world and signs of weak conditions abound and endure, iPath DBA Copper (NYSE: JJC
) was up more than 6% last week. On Friday, it soared more than 4%.
Like gold (NYSE: GLD
) and silver (NYSE: SLV
), copper is rallying on traders's hopes for Quantitative Easing 3. During Quantitative Easing 2, the GLD, SLV and JJC all rose due to the weakness of the US Dollar. While Federal Reserve Chairman Ben Bernanke did not introduce Quantitative Easing 3 as many traders had hoped, he did article a policy of what what analyst had termed "QE Forever." Most likely, Bernanke will make a move after the election in November.
Unlike gold or silver, almost all of copper goes for industrial usage. While the JJC rose with the SLV and the GLD during the period of Quantitative Easing 2, there will still strong demand for the Red Metal. China, by far the world's largest consumer, was booming. But economic growth is declining in China. Europe, the second biggest user of copper, is now in a recession.
But two developments last week were very bullish for copper, which sent the JJC higher. China announced a $156 billion stimulus program that will focus very heavily on infrastructure development. That should increase the demand for copper. The other was that Glencore sweetened its bid for Xstrata.
Over the last year of market action, the JJC is down by 13.80. Over the last quarter, however it has rallied by 9.50%. Much of that came last week. There will have to be more bullish news from China for copper to support that rise.