Red Gold Called Copper…The ‘Dark Horse’ Among Precious Metals

February 1, 2015

Copper forecastAs ‘Black Gold’ is the term frequently referring to Crude Oil, while ‘Red Gold’ is occasionally used to refer to Copper.  Copper has been in use at least 10,000 years, but more than 95% of all copper ever mined and smelted has been extracted since 1900.

For centuries Copper has always been considered an Industrial Metal. However, since the dawn of 2003 the price performance of Copper has indeed competed neck and neck with Gold and Silver price appreciation…and has literally left Wall Street stocks nearly dead in the toilet water.  The following chart shows the appreciation of Copper, Gold, Silver and the DOW Stock Index during the past 12 years (as of January 26, 2015). 

  • Silver appreciated a whopping +273%
  • Gold appreciated a whopping +268%
  • Copper appreciated a whopping +262%...while
  • DOW Stock Index rose a paltry +109%

copper spot price 26-jan-2015

And whereas precious metals and other commodities are widely produced throughout the world, copper production is dominated by only one country.  The southernmost country in South America is Chile, which produces as much copper as the next 5 largest copper producing countries…COMBINED (i.e. China, Peru, USA, Australia and Zambia).  CLEARLY, Chile can control global copper prices…i.e. the price of Red Gold.

copper total mine production

As mentioned Chile accounts for over one third of world's copper production followed by China, Peru, United States, Australia, Indonesia, Zambia, Canada and Poland. Major exporters of copper ores and concentrates are Chile, Peru, Indonesia, Australia, Canada, Brazil, Kazakhstan, United States, Argentina and Mongolia. The biggest importers of copper are China, Japan, India, South Korea and Germany. Copper market participants use the COMEX Division of high-grade copper futures and options to mitigate price risk.

USES of Copper…aka Red Gold

Copper is the world's third most widely used metal, after iron and aluminum, and is primarily used in highly cyclical industries such as construction and industrial machinery manufacturing. Profitable extraction of the metal depends on cost-efficient high-volume mining techniques, and supply is sensitive to the political situation particularly in those countries where copper mining is a government-controlled enterprise. (Source:  Wikipedia)

Copper is used in water pipelines, intelligent houses and buildings, electrical motors, power lines, electrical appliances, health care, environment related industries, computers, communication devices, in general, in the industries that are shaping the future. Copper is also used in artillery shell casings, small arms ammunition, water pipes, and jewellery.

Production trends in the top five copper-producing nations (dominated by Chile)

China Consumes Nearly 43% of the World’s Copper Supply  

The outlook for copper is greatly focused on China. Copper consumption will grow as a consequence of overall economic growth. China has been a shining example of overall economic growth, growing at an annual rate of 9.9% between 1980 and 2010. Most forecasts do not have China slowing down anytime soon; the IMF predicts China's economy will expand at an annual rate of 9.7% over the next 5 years.

For perspective on where these trends are headed, consider that North American consumers use about 10kg of copper per capita. In China, however, even after years of economic growth, per capita copper usage is still only about 5.4 kg. As China’s populace urbanizes, builds up its infrastructure and becomes more of a consuming society, copper consumption will likely approach or even surpass North American levels (on a per capita basis); the country’s rate of copper consumption is expected to increase 9% annually through 2016. With more than 1.4 billion people in China compared to USA’s 324 million, even slight increases in Chinese consumption will translate into enormous copper demand growth.

"China is the world's locomotive... copper is its partner in development"



CAGR is 3.0% (2007-2032)

Copper As A Precious Metal…Indeed Copper Is The ‘Dark Horse’ Among Precious Metals

The astounding chart below shows that during the past 12 years, COPPER’s performance (appreciation)  was greater than Palladium (224%), Platinum (109%) and the DOW Stocks Index 106%).  Furthermore,  COPPER’s remarkable performance (256%) was only a tiny fraction below the appreciation of GOLD (268%)  and SILVER (259%). Indubitably, this remarkable feat qualifies COPPER AS A PRECIOUS METAL in the global world of commodities.

2020 Copper Price Forecast

Copper offers the best long-term value of all metals. Why? Because copper has always been, and will continue to be, one of the world’s most important industrial metals. As new applications are discovered and as demand in developing countries grows, copper’s value will only increase.

The basic assumption to estimate Copper’s price 5-years from now (2020) is premised on its Compound Annual Growth Rate (CAGR) from 2003 to date (2015).  To be sure Copper’s price appreciation from 2003-2015 shows a CAGR of 10.5%.   Therefore, projecting this yearly appreciation for the next 5-years (to 2020) the price of Red Gold should (again) reach its all-time record high of $4.50 (forged in early 2011)…sometime during the next five years.

The above Copper price projection is feasible and reasonable for the following reasons:

  • Global Growth in copper demand is relentless based upon historical data since 1900 (*)
  • China’s copper demand continues to explode as the Sino nation accounts today for 43% of global demand.
  • Copper demand is intensifying due largely to continued urbanization and industrialization in Asia, particularly China and India with more than 2.5 Billion total population.
  • The International Monetary Fund (IMF) expects global growth in purchasing power parity to remain resilient underpinning continued expanding demand for Copper.
  • Likelihood of Currency Devaluation Contagion is increasing worldwide. In this event the value of all commodities will increase accordingly.
  • Chile produces as much copper as the next 5 largest copper producing countries…COMBINED
  • In the event Chile decides to curtail copper production, the price of Red Gold will soar vis-à-vis steady, inexorably growing demand.

Indeed, the Red Gold Called Copper is a ‘Dark Horse’ Among Precious Metals.

(*) The Global Copper Production chart below speaks for itself…as it goes viral.

Source: http://en.wikipedia.org/wiki/Peak_copper

Today over 60% of Chile’s total exports are from Copper, while 20% of its GNP is due to Red Gold production. CLEARLY, Chile has the means and dire need to control global copper prices…i.e. to boost the price of Red Gold with a view to stimulate the Chilean Economy.

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Founder of Gold-Eagle in January 1997.  Vronsky has over 42 years’ experience in the international investment world, having cut his financial teeth in Wall Street as a financial analyst with White Weld. Vronsky speaks three languages with indifference: English, Spanish and Brazilian Portuguese.  His education includes a degree in Petroleum Engineering from the University of Oklahoma, a Liberal Arts degree from Hartnell College and a MBA in International Business Administration from UCLA – qualifying as Phi Beta Kappa and Tau Beta Pi for high scholastic achievements.  Vronsky believes gold and silver will soon be recognized as legal tender in all 50 US states…and many countries worldwide.  You may reach I. M Vronsky at: vronsky@gold-eagle.com and/or vronsky@bellsouth.net

The California Gold Rush began on January 24, 1848 when gold was found by James W. Marshall at Sutter's Mill in Coloma.