Monday, October 31, 2005


Is Copper Leading A Commodities Bubble?

While not precious, this copper story is relevant to the inflation question. "Copper has doubled in price since 2003 and is up 40 percent this year alone, thanks to the housing boom in the United States and increased demand from China and India. But after hitting record highs two weeks ago, copper prices have bounced wildly in recent trading, kindling fears that a commodity price bubble is about to burst, even as mainstream investors keep piling into the markets."

"Copper prices 'will fall at least 25 percent by the end of the year,' said Maqsood Ahmed. Speculative buyers have pumped copper up beyond what the fundamentals justify, he said."

"When copper prices start to fall, 'it could be a dramatic affair rather than a slow burn,' added Nick Moore, director of global commodity analysis at ABN AMRO. He predicted that prices would drop 40 percent in 2006."

"New inflows of capital in the market from investors like hedge funds and pension funds, which often make bets that the market's current momentum will continue, have exacerbated price increases."

"'If one tries to gauge the commodity bubble over all, copper is the place to look,' said Henry To. He maintains that prices have been over inflated by emotion, not fundamentals, just as they are in oil, and could fall. 'People are just scared, because they think we'll run out of copper in the warehouse,' To said."

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