'Dr Copper' says an economic recovery is coming. The metal has reached its highest price for over two years. Given its use in so many industries, such a rise has traditionally been regarded as a sign of a general upturn in the global economy. And it’s not just copper that’s rising. Since March, aluminium and zinc have risen by 30 per cent while oil is up 74 per cent.
Which poses the question: should investors be buying commodities in the hope of further rises? There are two reasons to believe so, but also reasons for caution.
One encouraging sign is that China’s economy is recovering. Not only is the manufacturing purchasing managers’ index close to a 10-year high but also annual growth in the M1 measure of the money stock is at its highest rate since early 2018. In the past, this has been a good lead indicator of upturns in output growth. That is good news for commodity prices, as there’s a decent correlation between the PMI and the S&P/GSCI index of commodity prices.