The Premier Silver Resource Website
Visit GoldSeek.com
Visit GoldReview.com
Visit UraniumSeek.com

- CLICK HERE TO VISIT THE NEW SILVERSEEK.COM -
Live Spot Silver
Navigation
Silver Market Articles
Silver Discussions at the Forum
Silver Company Links
Silver Market Updates
Silver & Gold Headlines
Silver Stock News
Silver Equity Quotes
Silver & Precious Metals Quotes







 
Copper Gains are Government-Sponsored

By: Dr. Jeffrey Lewis



-- Posted 21 July, 2011 | | Discuss This Article - Comments:

China steals the show when it comes to commodities.  Large public works projects, particularly in developing key infrastructure and housing projects, buoy commodity prices.  Increases in demand are naturally bullish for inelastic necessities like copper, which has only strengthened as spending from Beijing keeps Chinaís GDP on the up and up.

 

Silver investors should be interested in the market price of copper.  Most silver is merely a value-add to copper producers, who stumble upon the metal in search for the easier found copper.  Higher copper prices lead to more copper production, and silver comes with it.

 

Copper Demand Artificial

 

When a product has an inelastic demand curve, a change in demand brings a larger change in price.  If copper demanded increased by 10% as supply flat lined, high bidders would have to buy out the interest at the bottom of the price curve. 

 

Government programs often come with very few restraints on pricing.  This is true in the United States, where research and development costs for major military developments frequently cost multiple times more than their projections.  Itís also true in China, where cost is hardly a constraint for a government keen on keeping employment strong, even if it means investing in new projects that provide zero economic return on capital.

 

Behind copperís rise is a direct investment by the Chinese government to develop new affordable housing units.  Alongside the new housing projects, infrastructure investments in the electricity grid keep copper demand strong.  But one has to wonder how long copper used in Chinese projects will remain in Chinese projects.  Remember, the Chinese government has long been a fan of building real estate developments for tens of thousands of people Ė only to tear the buildings down a few years later. 

 

A savvy investor would note that if China isnít interested in returns, only employment (which is natural for a country with a Communist history), then it would be naturally interested in continuing this trend to every last detail.  Scrapping copper for recycling allows the Chinese to show employment in building homes, and employment from destroying and reusing their components.  

 

The financing effect

 

Itís impossible to look at China and ignore the widespread price controls.  Price controls are obvious in financing Ė so obvious that the copper market has become proxy for those who want to borrow inexpensively.

 

Hedging prices between London and Shanghai is big business.  If prices between the two markets become thick enough, the costs cover the shipping from the LME to Shanghai.  From there, buyers can offset the easily funded purchases from the LME with hard to raise cash from Shanghai.  The net effect is several months of free borrowed money.  Not only is the money free, but itís also highly-valuable in a country that tightened lending controls to slow rampant inflation.  For those with access to the financial markets, forward copper contracts are net out a win-win scenario.

 

How long this proves to be true, however, is another story.  As Chinese financiers hedge the difference between their cost and the cost on the London exchange, more and more copper is purchased months in advance, some of which will be purchased during periods which might not benefit from Chinaís fiscal stimulus.

 

Silver supply, which is necessarily affected by rising copper prices, might not be around for much longer.  Such extreme leverage to one economy with strong price controls should leave investors to consider the long-term implications of a short-run government program: rising silver supplies might be temporary.

 

Dr. Jeffrey Lewis

 

www.silver-coin-investor.com


-- Posted 21 July, 2011 | | Discuss This Article - Comments:



Article Archives

SilverSeek.com is presented to you by:

© 2003 - 2011
SilverSeek.com, Silver Seek LLC

The content on this site is protected by U.S. and international copyright laws and is the property of SilverSeek.com and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on SilverSeek.com. This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.

Disclaimer

The views contained here may not represent the views of SilverSeek.com, its affiliates or advertisers. SilverSeek.com makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of SilverSeek.com, is strictly prohibited. In no event shall SilverSeek.com or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.