Base Metal Demand Turning Bleak; Not a Good Sign for Global Economy

The threat of an economic slowdown in the global economy is increasing each day, but thanks to the optimistic stock markets flaring due to easy money, the threat goes unnoticed.

Copper stockpiles in the London Mercantile Exchange warehouses have reached a 10-year high. Since the beginning of this year, copper inventories have surged 84%. (Source: Wall Street Journal, April 11, 2013.)

According to the World Steel Association, steel demand in Japan is expected to decline (for the second year in a row) by 2.2% in 2013 and a further 0.6% in 2014. Similarly, the use of steel in the U.S. is expected to slow this year compared to 2012. (Source: World Steel Association, April 11, 2013.)

Other base metals, often referred to as “industrial metals,” are witnessing their demise as well. Consider the chart below of the Dow Jones-UBS Industrial Metals Index.


$DJAIN Dow Jones UBS industrial metals chart

Chart courtesy of

This index, comprising different base metal prices, has been declining since February and has shed more than 11% of its price. Base metals are used in many different industries, and if their demand slows and prices decline, then that’s not a great sign for the global economy.

Dear reader, it’s not a hidden fact: major economic hubs in the global economy are slowing down. In the U.S., we have high unemployment. Once-strong nations like Germany and France are being suppressed by an economic slowdown in the eurozone. Japan is in an outright recession. China’s economy is slowing, too.

After the economic slowdown of 2009, central banks in the global economy were able to inject significant amounts of money into their countries. Looking forward, what I do see happening is more central banks in the global economy resorting to even more paper money printing in the hopes to weather the economic slowdown.

Unfortunately, the economic problem at hand is slowing demand in the global economy; money printing will not change that problem.

Yes, gold bullion prices are under severe pressure now, but if central banks in the global economy turn to more money printing, then there will be an abundance of fiat currency in the system, and it will be the precious metals that will provide safety and stability.

A Note on Gold Prices:

Gold bullion prices fell sharply on Friday and again this morning. The media blamed the slowing Chinese economy and indications that the Federal Reserve would pull back on its $85.0-billion-a month quantitative easing program earlier than expected.

My opinion is that gold prices are correcting sharply after a multiyear bull market in the metal. Unlike the media, I don’t see gold entering a bear market. In fact, I see the current action in the gold pits as an opportunity. The “weak hands” that got into gold late are learning their lesson. I see a base forming for gold bullion prices.

What He Said:

“The proof the party is over in the U.S. housing market could not be clearer to me. The price action of the new-home builder stocks is telling the true story—these stocks are falling in price daily (and the media is not picking it up). Those that will hurt most when the air is finally let out of the housing market balloon will be those buyers that bought in late 2005. In fact, the latecomers to the U.S. housing market may end up looking like the latecomers to the tech-stock rally that ended so abruptly in 1999.” Michael Lombardi in Profit Confidential, March 1, 2006. Michael started warning about the coming crisis in the U.S. real estate market right at the peak of the boom, now widely believed to be 2005.