A recession seems almost certain at this point…
Inflation is crushing demand. High interest rates are grinding the housing market to a halt. And layoffs have started in many industries.
If you’ve studied history, you know that specific commodities always tank during recessions. They’re the industrial metals we use to make all kinds of things.
The most important one is copper. And right on cue, the metal is crashing.
Copper dropped 24% in just one month recently. That’s a rare decline. But what it means going forward might surprise you…
We can expect more losses at first. But copper prices will likely be dramatically higher a year from now… And a 50% move higher is possible.
Let me explain…
If you’re like most investors, you don’t think about copper prices much.
Sure, it’s important to the world. We need it to build all kinds of things… from buildings to cars to electronics. But as an investor, you might be thinking, “Who cares?”
Well, we do care when setups like this happen…
Fears of a global economic slowdown have been growing. And copper has crashed. Take a look…
Copper hit an all-time high in March. Then the bottom fell out from early June through early July.
Again, the metal dropped 24% in a month. We’ve only seen larger one-month drops about half a percent of the time going back to 1988.
Clearly, the trend is down. And we’d expect that to mean more losses are on the way. But that’s only partially true.
The table below shows what has happened to copper after similar declines. To put it simply, it staged more losses – followed by huge gains. Take a look…
Copper prices don’t move much over the long term. They increased by 2.6% a year since 1988, roughly keeping up with inflation.
However, prices can be incredibly volatile in the short term. And after declines like we just saw, a clear trend emerges…
First, copper prices will likely fall further from here. The typical three-month loss after these cases was 12%. And the metal declined 70% of the time over the next three months. Things tend to change quickly from there, though…
Over six months, copper prices typically jumped 15%. And the metal saw gains 81% of the time.
The story gets even better when you extend the time horizon…
Copper was up 100% of the time a year after similar falls. And it moved an incredible 51% higher.
That’s crazy price action… But it’s what’s possible after the fall we just witnessed.
Of course, the trend is still down right now. Plus, history shows we should expect more losses from here. But once prices begin to move higher, look out… A major copper rally is a near certainty.
That makes this a commodity to watch closely today… and one you should consider owning once the trend reverses.
Good investing,
— Brett Eversole
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Source: Daily Wealth