Gavekal Capital: Copper is Pointing to the Wrong Kind of "Flation"

Tuesday, April 15, 2014

Copper is Pointing to the Wrong Kind of "Flation"

We've been keeping a close eye on the copper price recently because it has been exhibiting some pretty significant weakness, and weakness in copper is often associated with weakness elsewhere. Last week and again yesterday we commented here and here that copper, after falling precipitously since the beginning of the year, had rebounded right back into an important resistance level at around $3.06. We opined that copper's ability, or not, to break above that resistance point would give us an important insight into which type of "flation" we should be more worried about. Given today's action, we may be closer to an answer. Copper is currently down 2.1% to below $3.00 and it looks like, for now, the $3.06 line in the sand is holding steady.


And indeed, when we compare the price of copper to 30 year breakeven inflation expectations derived from 30 year TIPS rates we see a very close overlay.