Is copper showing the downturn may be over?

However, what we can notice is that safe havens such as gold came under selling pressure as stock markets recovered from their bottom at the beginning of March.

Until March, investors fled into gold and government bonds.

Now investors are shifting out of bonds and gold and are buying stocks again, in a sign that confidence is returning.

In February, I discussed the Baltic Dry Index which also recovered strongly in the recent months. To give a clue whether the underlying fundamentals are improving, investors can also look at price developments of raw materials such as iron ore, steel, zinc and copper. These commodities are needed to (re)construct buildings and machines.

Chinese stimulus

Unsurprisingly, China is nowadays an economic power to watch closely. China is the world's largest buyer of copper and copper showed a fifth weekly advance as purchases by the developing country fuelled speculation regarding lower supplies.

Recently China launched an economic stimulus package of nearly $600bn to revive the economy.

Gross domestic production slowed to a growth of 6.1% in the first quarter, from the 6.8% expansion in the prior three months, after a collapse in exports. While western economies are coping with shrinking economies, China's economy is still growing - albeit at a lower rate.

Of course some analysts are sceptical concerning commodity prices. Copper is most vulnerable to a slowdown in China's economy in the second half, according to Deutsche Bank's Michael Lewis. The analyst points out that seasonal factors would suggest that Chinese copper imports are set to collapse over the next three months.

Although copper futures (high grade) increased nearly 70% from the bottom in January to a level of $221, prices still hover 50% under the levels seen in August 2008.

We might expect a pullback of the (June) futures towards $170 or lower, but it would be a bullish sign if copper did not fall back that much. In that case we would have more evidence that the worst of the crisis is over.