Signs of Crack-up Boom in China? Copper Premium Surges as Yuan Weakens

Bloomberg’s chart of the day shows that copper prices in China appears to be diverging from global prices copper due to the yuan's weakness…

Even as London copper prices remain mired near their lowest since 2009, the premium paid for the metal in the Chinese port of Yangshan is at a three-month high.

Buyers who haven’t locked in long-term supply are driving gains on fears that further depreciation in the Chinese currency will only make the metal more expensive in yuan terms, according to analysts at SMM Information & Technology Co. and Maike Futures Co. in Shanghai.

The above chart from Stockcharts.com shows of the USD price of copper.

When people buy commodities not because of economic demand but on fear of devaluation (inflationism), they represent flight-to-real values or the attempt to safe keep savings via commodities/real assets or the crack-up boom

The great Austrian economist Ludwig von Mises once warned, (bold mine)

The policy of devaluation has to some extent altered this typical sequence of events. Menaced by an external drain, the monetary authorities do not always resort to credit restriction and to raising the rate of interest charged by the central banking system. They devalue. Yet devaluation does not solve the problem. If the government does not care how far foreign exchange rates may rise, it can for some time continue to cling to credit expansion. But one day the crack-up boom will annihilate its monetary system.

So how does the crack-up boom emerge? The great Dean of the Austrian school of economics Murray N. Rothbard explained: (bold mine)

At first, when prices rise, people say: "Well, this is abnormal, the product of some emergency. I will postpone my purchases and wait until prices go back down." This is the common attitude during the first phase of an inflation. This notion moderates the price rise itself, and conceals the inflation further, since the demand for money is thereby increased. But, as inflation proceeds, people begin to realize that prices are going up perpetually as a result of perpetual inflation. Now people will say: "I will buy now, though prices are `high,' because if I wait, prices will go up still further." As a result, the demand for money now falls and prices go up more, proportionately, than the increase in the money supply. At this point, the government is often called upon to "relieve the money shortage" caused by the accelerated price rise, and it inflates even faster. Soon, the country reaches the stage of the "crack-up boom," when people say: "I must buy anything now—anything to get rid of money which depreciates on my hands." The supply of money skyrockets, the demand plummets, and prices rise astronomically. Production falls sharply, as people spend more and more of their time finding ways to get rid of their money. The monetary system has, in effect, broken down completely, and the economy reverts to other moneys, if they are attainable—other metal, foreign currencies if this is a one-country inflation, or even a return to barter conditions. The monetary system has broken down under the impact of inflation.

Has rising domestic copper prices in China been revealing of the incipient transition phase towards a crack-up boom?