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Dr. Cu Diagnoses Severe Copper Price Disorder

October 24, 2011 by · Leave a Comment—No wonder people hate going to Dr. Copper.

They say copper is the commodity with the PhD in economics—this scares me. As Peter Schiff’s hilarious critique on two Nobel Prize-winning economists who couldn’t answer questions on the economy shows, most “economists” shouldn’t be allowed to talk. In fact, the vast majority should probably be thrown in jail, considering the state of the world economy and their continued theory-based assertions for more of the same: more growth and—especially—government stimulus. Yes, let’s make things worse. After all, things need to get worse before they get better . . . Right?

The problem with copper is that one day (yesterday) news comes out that copper “points to global pain” and then the next day (today) news comes out that copper “surges on Europe debt deal optimism.” Really? So copper, like many economists, is as dumb as the rest of the herd, victim to a market controlled by sentiment, riding a near-bursting debt bubble.

The copper optimism goes like this: it’s because of China and the EU; the copper doom goes like this: it’s because of China and the EU. So which combination is correct?! The metal has rallied more than 12% in the last two days, surging 7% today as manufacturing data from China and confidence that an EU debt deal could be reached boosted the markets. But copper, like every other commodity, is trading on headlines. What happens if the EU reports a disaster tomorrow or China predicts less growth and higher inflation? Wednesday’s EU summit is being hailed as the be-all-end-all of the European debt fiasco, yet if Merkel, Sarkozy and the team walk away in frustration or laughing at the ridiculousness of it all, like they have already done, watch copper go down. Again.

Those with thick skin may see this as a great time to buy copper miners, whose shares have plunged from earlier in the year. If you’re looking for a cheap entry-point with an exploration company, perhaps Quantum Minerals Corp. [QMC – TSX.V] will spark your interest. With a 100% working interest in the Rocky Lake, Carrot River and Namey Lake projects in the renowned copper districts of Manitoba, QMC is currently developing extensive exploration programs to search for Cu-Au-Ni-Zn. Copper One [CUO – TSX.V] is also a stock to keep an eye on as its drill results from the highly promoted Lone Mountain copper oxide project in New Mexico are expected soon. Or, if you have cash to burn, Copper Mountain [CUM – TSX] is down substantially from its 2011 highs. With an estimated 5 billion pounds of copper in its new, producing mine, the company is a safer bet to ride out the volatile storm.

Or you could just find an abandoned house and rip out the copper pipes. Even better, start saving pre-1996 Canadian pennies (pre-1982 US pennies) like the much-loved penny hoarders on YouTube, whose videos have inspired countless others to pursue constructive, albeit weird hobbies. The only certainty, they say, is uncertainty—this is what copper’s price swings show us, prognosis be damned.

Chris Devauld 

Disclaimer – The author does not own shares in the companies mentioned in this commentary. Members of Cordova Media Inc. which owns, may or may not own shares of companies mentioned. The author and staff of reserve the right to purchase shares of companies mentioned after 36 hours have elapsed upon publication of this article.

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