Global economic momentum improving, but don’t ignore disconnect between stocks and Doctor Copper


Global economic momentum is improving and looks set to surprise on the upside in 2014. However, Doctor Copper should not be ignored. Copper has frequently been dubbed the metal “with a Ph.D. in economics” for its uncanny ability at forecasting the global economic cycle. When the global economy expands, industrial output increases and demand for copper pushes its price up. The converse happens when the global economy contracts. Global stock prices have anticipated this favourable state of affairs and have priced in much of 2014′s growth potential.

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U.S. stock market: due for a correction

Regardless of how the economy performs this year, I suspect the U.S. stock market is due for a correction, perhaps as soon as the first quarter of 2014. Sentiment is very bullish and fund managers have piled into the market en masse to avoid under-performing their peers or their benchmarks. People generally believe the Federal Reserve has managed to rescue the economy. The market has moved straight up for one year with at most very shallow pullbacks. I believe the time is ripe for the market to rattle some nerves.

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Financial Markets: Gold and Silver — At critical support

Gold and silver are at critical multi-month support. Gold is near the critical support band of 1540-1560 per ounce, whilst silver is near the critical support band of 27-28 per ounce. If this important multi-month supports for gold and silver are broken, and price trades below it for more than a couple of weeks, I will expect more downside, more volatility, and a much broader trading range.

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