The metal began to sell off a few weeks ago on disappointing data from the U.S. and China. The Chinese growth figure for last year was in line with expectations, but continued its multiyear trend toward sub-7% levels.
The slower growth is partly the result of the Chinese government's attempt to decrease the country's reliance on investments and capital spending and move more toward an economy based on consumption. The change in direction makes economic sense, although it reduces the demand for copper in China.
Meanwhile, weak employment data in the U.S. have weighed on copper. The figure for December missed estimates, leading economists to question the underlying health of the U.S. economy at a time when the Federal Reserve is cutting back its stimulus program.
Copper is an industrial metal, commonly used as a gauge of economic activity. Demand for the metal increases when factory output rises or more construction projects are undertaken or both. The price also tends to rise when investors are confident in the economy and financial markets.
Copper saw renewed selling on Monday as a measure of factory output contracted in the U.S. and China, the world's two largest economies.
Copper's downtrend lasted most of January and has now spilled over into the beginning of February. Market sentiment remains fragile ahead of Friday's U.S. employment report, and copper's price has begun to consolidate.
If the employment number is in the range of 200,000 jobs added, then the weak December figure will be viewed as an anomaly, and copper will most likely spike higher. But if the employment figure comes in below estimates again, copper could plummet to new lows for the year.
At the time of publication, the author had no position in the fund mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.