‘Dr. Copper’ plunges to US$2 for first time since 2009: ‘Things are quite horrible and about to get worse’

 Copper goes by the nickname “Dr. Copper,” because the red metal is viewed as a barometer for the global economy. And unfortunately, it hasn’t been saying anything cheery of late.

 

Copper prices plunged back to US$2.00 a pound this week, the first time they have touched that level since the last gasps of the Great Recession in 2009. Prices are down nearly 60 per cent from their 2011 highs of more than US$4.60, and plenty of experts think they will keep going lower.

 

And that, more than the uncertain global economy, is a key reason why experts think prices will fall further — entirely independently of the outlook for worldwide trade. Despite the steep decline in prices this year, the vast majority of copper producers are still making money at US$2.00 a pound. That is in stark contrast to some other commodities, such as nickel, where most of the global output is losing money at current prices.

DYI Comments:  As a contrarian value player the metals are unable to generate any positive news.  Our favorite Vanguards Precious Metals and Mining Fund (VGPMX) has been decimated.

This bodes well for the "real" long term investor, opposed to short term speculators, it is possible to build a position over the next couple of years(possibly more) in your favorite mining company mutual fund at very low prices.  Dollar cost averaging only as the possibility of a global downturn is growing (not a certainty), if that occurs, precious and industrial metals will drop further impacting mining companies profits negatively forcing share prices lower.

Our proxy to determine valuation level for metals is the Dow/Gold Ratio.  Currently today with the Dow at 17,807 and gold trading at $1070 the ratio is currently 17 to 1(rounded).  On a macro basis, depending on where you draw the regression line(green line), the ratio is at or near average valuation.

The physical metals are neither expensive nor cheap.  However, the mining companies share prices have sold off far beyond their actual physical metals that they mine.  In other words, a bargain for patience investors.  How much?  Our formula based investment process has us at 17%.

  Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION -  11/1/15

Active Allocation Bands (excluding cash) 0% to 60%

79% - Cash -Short Term Bond Index - VBIRX

17% -Gold- Precious Metals & Mining - VGPMX

 4% -Lt. Bonds- Long Term Bond Index - VBLTX

 0% -Stocks- Total Stock Market Index - VTSAX

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 DYI