Copper curve flips into backwardation
For the first time in over a year, the spot price of copper has moved above the price of its 3-month futures contract.
Bloomberg notes that this new environment of backwardation is likely due to supply disruptions. Whatever the cause, it ended one of the longest streaks of contango for the metal.
For copper itself, the last couple of times it first went into backwardation, it was the end of brief rallies, leading to big declines in the months ahead. Only once did it precede a sustained bull market.
One of the reasons why investors like to watch the metal is because it has a number of industrial uses, and a surge in copper might mean an uptick in economic activity as well. While the futures curve is influenced by many reasons other than economic demand and the current inversion might be unrelated, other times this happened it was mostly good for stocks, with 2001 being the biggest exception.
Other markets didn't show much of a bias. Copper still had a minor bias to underperform gold, and it wasn't a consistent signal for the broad commodities market, either.
Copper can be a useful indicator for other markets, primarily stocks. It's not perfect, but it does tend to be a good sign when the metal is behaving well. The fact that the market is now in backwardation hasn't been consistent enough to give us much more information, however.