The price of copper is traditionally such a good indicator of the economy's health that copper has earned the nickname "Dr. Copper." In this chart, we see copper trading today at about the same level as it was for a few years prior to the crash of 2008. At $3/oz., copper today is worth almost five times as much as it was in November 2001, when most commodity prices hit bottom. That was also the end point of the 2001 recession, and also the beginning of what would be many years of very accommodative monetary policy from the Federal Reserve.
I keep hearing the drumbeat of deflation concern, but it's hard for me to understand. Back in the early 2000s deflation risk was extremely high: gold fell to $260/oz., most commodity prices hit lows they hadn't seen since the 1970s, and the dollar was soaring against most currencies. Now all these key indicators of the scarcity of money are reversed: commodity prices are near all-time highs, gold is $1200/oz., and the dollar is in the lower end of its historical trading range vis-à-vis other major currencies.
If nothing else, copper prices today tell us that deflation is not a concern but that inflation is. I think copper also is telling us that the global economy is pretty healthy, as demand for the metal has been unusually strong for a number of years. My friend Mike Churchill points me to an interesting story suggesting that copper supply is also relatively tight. Whatever the case, $3 copper is saying that deflation and recession are simply nowhere to be found in the global economy.
