Gold vs. Copper

We can't seem to stop talking about either gold or copper, so clearly they are both important. Many would argue that they are the two most important metals on the planet and have been for centuries. Who am I to argue? So, let's do a comparison.

In the charts that follow I am trying to allow the modern mining equipment miracle to play a part and not just discuss prices in isolation. I think it helps to show that the sheer quantity of our money growth is at least somewhat balanced by the sheer quantity of mining. I think a decent inflation/deflation debate requires at least a bit of both.



This shows the cumulative world production of gold and copper since 1900 times the price of the metals in the given year. In other words, it's how much it would cost you to hoard all the metal mined since 1900 assuming it all still exists and also assuming that you wouldn't drive up the price while doing it.

Keep in mind that the price of gold was fixed for four decades. You can see the effect in the chart. Look for that straight line from the 1930s to the 1970s. You can also see the effect in the next chart. You can also clearly see the bubble that formed in its aftermath.



This sure does not look like a gold bubble to me, at least compared to copper. Things have changed a bit since 2007 though, so let's try to factor that in. For the moment, we'll ignore the recent world production and just concern ourselves with prices.

Copper was $3.28 per pound in 2007. It's now $3.18 per pound. It's 3% cheaper. Gold was $697 per ounce in 2007. It's now $1097 per ounce. It's 57% more expensive. Overall, that puts the gold to copper ratio at about 1.3. Compared to copper, it looks to be slightly undervalued. Score one for the gold bugs!

There's still one important question left though. Is copper in a bubble? I happen to be of a deflationary mindset. I think copper is very overvalued. If so, then gold could/should drop in sympathy if copper crashes (again). Much to the dismay of gold bugs, when copper crashed in 2008 gold did too. It just didn't crash as hard.

Financial and Commodity Bubbles Everywhere?

So, why isn’t copper or orange juice in a bubble? I wonder how many people are aware that copper is up over 4 times what gold is up this year, and oil over 2 times. Even silver is up more than gold this year.

That's just it though. I do think copper is in a bubble. It has recovered almost its entire drop from the bottom. We now have virtually the same copper price in this weak global economy that we had in the apparently strong global economy of just a few years ago. I'm not a believer and I'm bracing for the next down leg.

If I am right, then I may yet be a gold bug again someday. It would depend on how far copper falls (if it does) and how far gold may fall with it (if it does). If I am wrong, then I will have just one thing to say. Oops! Okay, maybe I'd have two things to say. Thank goodness I didn't short copper or gold. ;)

Copper extends gains; Shanghai at 15-month peak

"This is end-of-year optimism confronting fundamentals and it's the optimism that is carrying the day," Jonathan Barratt, managing director of Commodity Broking Services, said.

"I worry that stimulus packages are rolling off. Inventories don't seem to be falling and I am worried about property markets and sovereign debt -- we are watching those as a pre-indicator for a fall in copper."

But on the last day of trading before Western markets close for Christmas, investors said "Bah-humbug" to worries about demand in 2010.

Optimism is carrying the day? What happened to the pessimism bubble?

Source Data:
USGS: Historical Statistics for Minerals
Kitco: Gold
Kitco: Base Metals