{"id":59755,"date":"2012-04-04T10:23:53","date_gmt":"2012-04-04T00:23:53","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/04\/04\/crude-oil-futures-and-copper-prices-the-ultimate-indicator\/"},"modified":"2012-04-04T10:23:53","modified_gmt":"2012-04-04T00:23:53","slug":"crude-oil-futures-and-copper-prices-the-ultimate-indicator","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/04\/04\/crude-oil-futures-and-copper-prices-the-ultimate-indicator\/","title":{"rendered":"Crude Oil Futures And Copper Prices: The Ultimate Indicator?"},"content":{"rendered":"

\n\tBy Ryan Fitzwater<\/span>, Investment U<\/p>\n

\n\t"Gina Martin Adams, a strategist at Wells Fargo, likes to look at a copper in comparison to another commodity known to have its own economic gauge…<\/span> oil."<\/p>\n

\n\tFor years copper has been touted as the gauge<\/span> for the world’s economic health, with many experts referring to it as “Dr. Copper,” stating it has a Ph.D. in economics.<\/p>\n

\n\tCopper is rather inexpensive, tremendously abundant and has numerous useful properties.<\/p>\n

\n\tAs an excellent conductor of heat or electricity, and corrosion resistant, it is used in various industrial applications.<\/p>\n

\n\tAny emerging or expanding industrial economy relies on copper from plumbing to electrical wiring, to air conditioners and radiators.<\/p>\n

\n\tAnd during periods of economic growth you normally see the rise of large construction and telecommunication projects, infrastructure updating, medical and energy expansion, and technological developments all that entail the use of copper.<\/p>\n

\n\tAs demand for the copper goes up, so does it’s price.<\/p>\n

\n\tThe idea is simple, by watching the price of copper and what the globe is doing with it, experts can gauge<\/span> if the world economy and emerging industries are healthy and growing.<\/p>\n

\n\tDoes the Gauge<\/span> Always Work?<\/strong><\/p>\n

\n\tTo put it simple… no.<\/p>\n

\n\tThe “Dr. Copper” rule is not a bulletproof theory. Yes, there are many times in the past when copper prices grew along with improved economic health, but there have been several times when this was the opposite.<\/p>\n

\n\tAnd while copper can still continue to be one of the most useful gauges<\/span> for detecting economic health, Gina Martin Adams, a strategist at Wells Fargo, likes to look at a copper in comparison to another commodity known to have its own economic gauge…<\/span> oil.<\/p>\n

\n\tAdams compares the ratio between copper and crude-oil futures to the S&P 500 to gauge the health of the global economy; she calls it the copper-to-oil ratio.<\/p>\n

\n\tShe notes that when copper is accelerating faster than oil prices, stock tend to do particularly well. But at times when oil prices outpace copper prices, economic growth tends to fade.<\/p>\n

\n\tAnd recently Adams has seen the latter case of oil gaining on copper.<\/p>\n

\n\t\"\"<\/p>\n

\tYou can see in the chart above that since this year’s peak on February 6, the ratio has started to fall.<\/p>\n

\n\tSo while many can use the “Dr. Copper” theory to tout that copper has risen 12.5% in 2012 and will continue to rally with the economy, we also can use the copper-to-oil ratio to get another perspective.<\/p>\n

\n\tOil is used to transport goods all over the globe, and when the price of oil starts to rise, so do the cost of goods, which has a negative effect on the economy.<\/p>\n

\n\tComparing two different commodities that give insight to the health of the global economy gives investors a more rounded picture.<\/p>\n

\n\tWhile oil has only risen around 3.5% to date (less than copper) the oil-to-copper ratio is losing steam, signaling that the 2012 rally in U.S. stocks could start to fade.<\/p>\n

\n\tInvestor should keep an eye on both copper and oil prices. If copper continues to outperform oil the rally could continue, but if oil start to catch up to or outpace copper we could be in store for a slow down.<\/p>\n

\n\tGood Investing,<\/p>\n

\n\tRyan Fitzwater<\/span><\/p>\n

\n\tReprinted with permission of the publisher. The above story can be read on the website www.investmentU.com. The direct link is: http:\/\/www.investmentu.com\/2012\/March\/crude-oil-futures.html<\/p>\n

\n\tNothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.<\/p>\n

\n\tViews expressed are not FNArena's<\/span> (see our disclaimer).<\/p>\n","protected":false},"excerpt":{"rendered":"

Investment U’s Ryan Fitzwater offers an alternative indicator to gauge economic health and the outlook for risk appetite.<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5],"tags":[23,24],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59755"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=59755"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59755\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=59755"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=59755"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=59755"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}