Copper Standard

Speculation that China is stockpiling copper, and other metals, in an attempt to diminish its reliance on the US dollar.

Ambrose Evans-Pritchard wrote in The Telegraph:

Hard money enthusiasts have long watched for signs that China is switching its foreign reserves from US Treasury bonds into gold bullion. They may have been eyeing the wrong metal. China’s State Reserves Bureau (S.R.B.) has instead been buying copper and other industrial metals over recent months on a scale that appears to go beyond the usual rebuilding of stocks for commercial reasons. …

While it makes sense for China to take advantage of last year’s commodity crash to restock cheaply, there is clearly more behind the move. “They are definitely buying metals to diversify out of US Treasuries and dollar holdings,” said Jim Lennon, head of commodities at Macquarie Bank.

Evans-Pritchard concluded:

The beauty of recycling China’s surplus into metals instead of US bonds is that it kills so many birds with one stone: it stops the yuan rising, without provoking complaints of currency manipulation by Washington; metals are easily stored in warehouses, unlike oil; the holdings are likely to rise in value over time since the earth’s crust is gradually depleting its accessible ores. Above all, such a policy safeguards China’s industrial revolution, while the West may one day face a supply crisis.

Beijing may yet buy gold as well, although it has not done so yet. The gold share of reserves has fallen to 1pc, far below the historic norm in Asia. But if a metal-based currency ever emerges to end the reign of fiat paper, it is just as likely to be a “Copper Standard” as a “Gold Standard.”

The Financial Times’s Alphaville blog observed “It’s not such a crazy concept …” and offered further technical analysis of China’s copper shopping spree. Reuters reported on the hard numbers.