We’ve enjoyed watching the recent selloff in copper. It’s been one of the best trades of 2013 for trend followers. Prices have moved 15% lower from their 2013 high of $3.80 in February. Unfortunately, the party might be coming to a grinding halt soon. According the Wall St. Journal, the cost of mining a pound of copper is around $2.80 – and with copper futures only needing another -10% to -11% drop to reach this level, it doesn’t look like this trend has very much room left to run.

Chart courtesy Finviz.com. Disclaimer: past performance is not necessarily indicative of future results.

The beauty of a managed futures investment is that it is possible to go both long and short various markets. Many investors and market professionals still miss this point when discussing commodity investments. However, even though trades can profit from price moves in either direction, trend traders will also tell you that earning significant profits on short trades can be harder than when trading on the long side. This is because it is virtually impossible for commodity prices to go to zero. As long as there is demand for a product, input costs (such as production, storage, etc.) set an artificial floor on how far any commodity can fall. If prices fall to the level where it is no longer profitable to produce, all the producer has to do is turn off production until supply dwindles and prices start to rise again. This is the short trade conundrum that trend followers encounter during big declines in commodity prices.

And for all those wondering about gold, self-reported production costs from junior miners varies wildly, from around $350/oz all the way up to $1150/oz. How that plays out should gold continue its plunge is anyone’s guess…