Don’t Buy Copper On Weakness, Buy On Strength

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Almost every metal buyer tries to buy forward, either increasing inventories or fixing prices with suppliers, when they see or they hear that their particular metal is “cheap.”

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This habit is completely intuitive. It’s the way human beings are wired. We tell our kids at a very young age to buy what’s on sale. However, that discount mentality is a very dangerous mentality to bring into the market.

Buying low can work out well once in a while, but in the long-term, it is not a good strategy. If a metal is trending down and making new lows, it’s usually for a reason. There is no benefit in trying to pick out the bottom to save a few dollars.

Copper in a falling market 2011-2015

Copper in a falling market 2011-2015. Source: MetalMiner.

Buyers should be more inclined toward buying forward in bullish markets whereas buying down the market in bearish markets. If you buy forward when prices look cheap (buying on weakness), you might think that you are buying a bargain but in reality you are buying when prices have a high probability to keep falling. This is what’s happening now with almost every metal you buy. They just keep falling. The best example is if you buy copper (chart above), for which we kept recommending buyers not to go long.

So when is the right moment to start buying forward then?

Good question!

The right moment to start buying up/hedging is at those points where there is a high probability of a price increase, and that is when the market gives real clues that the prior downtrend is over and a new uptrend is forming.

It is really hard to pick out a bottom. Placing purchases at those points is risky as prices can experience further declines. It’s always better to buy/hedge on price strength, not on prices weakness.

For this reason, based on the current market conditions, the best option is to keep buying down the market and wait for signs of strength before buying forward.

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