During the period of Quantitative Easing 2, the exchange traded funds for gold (NYSE: GLD
), silver (NYSE: SLV
) and copper (NYSE: JJC
) soared. This was due to the value of the United States Dollar falling from the economic stimulus measures of the Federal Reserve under Chairman Ben Bernanke. The iPath DJ-UBS Copper also rose as the Chinese economy was growing, increasing demand for the Red Metal.
But a recent report puts Chinese demand for copper as remaining low. China is, by far, the world's biggest consumer of copper. In addition, Europe, the second largest user of copper, is in a recession. Unlike gold and silver, copper is used almost entirely for industrial demands. SPDR Gold (GLD) and iShares Silver Trust (SLV) will rise on heavy buying for investment purposes and jewelry. That is not the case for copper as it is used for industrial needs. If an economy is slacking, copper goes down.
From slumping global demand the share price of the JJC has been pounded like copper being formed into piping for the building of a house. Over the last year, it has fallen by 19.65%. It is down for the last week of market action, too.
Tomorrow Federal Reserve Chairman Ben Bernanke speaks at the economic policy summit in Jackson Hole. It was as this event that he introduced Quantitative Easing 2 to the world. As a result of Quantitative Easing 2, the share prices of the JJC, SLV and GLD soared. Quantitative Easing 2 consisted of the Federal Reserve inflating its balance sheet to purchase $700 billion in US Treasury bonds.
No other buyers, foreign or domestic, could be found to buy US Treasury Bonds at such low interest rates. That confluence of events naturally led to a price decline for the US Dollar. Commodity prices for copper, gold and silver soared as traders moved into hard asset exchange traded funds such as the JJC, SLV and the GLD.