As Latin America is in the worst phase of the pandemic, it is lost sight of that most of the world is leaving behind the first great wave of Covid-19. Hope for recovery encourages world markets, buoyed by vast monetary and fiscal stimuli.
China came out first and this is no less, since it consumes half of all the copper in the world, and perhaps today it is ¾ because the rest of the planet lags behind. That its indicators point to a recovery in “V” is essential. In addition, the worst of the health crisis is lagging behind in the main economies, including the United States.
This has reversed the search for “safe haven” assets, especially the dollar, with which its subsequent weakening has pushed assets denominated in this currency, such as copper.
Is this the end of this story? Certainly not. At least three risks have yet to be overcome, which will pose uncertainty at least until next year. The first is that there are new waves of reinfection, which, without a vaccine, will be a sword of Damocles for the world, as it was confirmed these days before the evidence of outbreaks in the US and China. The second is that a solvency crisis is unleashed (chronic unemployment, bankruptcies and stock market correction) that triggers a depressive spiral in the international economy. And the third, that geopolitical tensions reappear and hit the economy.
But beyond these risks, the rise in copper may be reflecting much larger trends. The colossal stimulus policies of the US federal reserve have already materialized $ 3 trillion and it is believed that it could reach $ 9 trillion. Although this situation is not new, since the United States has resorted to increasing waves of issuance and debt for decades, until now these injections have not been reflected in inflation and real growth as expected, but in a buoyant stock market, especially after of the Great Financial Crisis in 2008, giving way to the longest period of increase in the New York Stock Exchange index in history. But this time, due to both its magnitude and the greater challenges facing the dollar to maintain its global pre-eminence, it is possible that monetary injections will be transferred to inflation and for a prolonged period of time, thereby protecting assets that historically protect the value of money in inflationary periods, such as metals, are favored.
Lastly, it cannot be ruled out that copper prices are beginning to incorporate the taking of investor positions in view of the prospect of lower production in the world as a result of the Covid-19 health crisis, which is currently raging against Latin America, a key continent for the supply of iron, copper and many other metals.
Juan Carlos Guajardo – Executive Director Plusmining
Translated with Google Translator