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The doctor is in: Copper rises to 16-week high

Munshi Ahmed | Bloomberg | Getty Images

Copper futures rose 1 percent in two hours on Monday morning, taking the industrial metal to the highest level since March 7. Experts say the quick move largely reflects a weaker dollar and fading concerns about Chinese copper financing. But for believers in the "Doctor Copper" theory, the move also indicates something more: growing optimism about the global economy.

It hasn't been a great year for copper. The reddish metal—which is used in everything from electrical wiring to plumbing to roofing to jewelry, and arguably enjoyed its heyday some 5,000 years ago— is still down 6 percent in 2014.

The most recent cause of concern has been Chinese copper-based loans, whereby copper is used as collateral for financing. Not only might the loan-related demand for copper be less reliable than industrial demand, but authorities have recently found that the same physical metal has been used to back up multiple loans. A major crackdown on copper-based loans could be very bad news for the copper market.

Yet such jitters are now beginning to recede.

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"There is diminishing concern about some of the financing irregularities that have been uncovered, with the feeling being that this is unique to a couple of players and should not significantly impede the financing of metals," wrote Edward Meir, metals analyst for INTL FCStone.

An additional reason for the strength that Meir and others point to is more prosaic: The U.S. dollar is dropping sharply on Monday to a nearly two-month low, consequently pushing up commodity prices across the board (given that as the U.S. currency becomes weaker, more dollars are required to buy the same amount of a given commodity).

"I think copper is mostly a dollar story," said Chicago-based trader Jim Iuorio. "The yen and the euro have both staged a rebound after feeling the effects of easy money policies."

But a final driver is significantly more interesting. Copper, which is often known as "Doctor Copper" due to its perceived ability to "diagnose" the health of the global economy, could be rising because of optimism about the economy. And indeed, a few key economic releases this week could indicate that the global economy is stronger than the copper market has been implicitly forecasting.

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First, China's Purchasing Manager's Index (or PMI) is seem hitting a six-month high when it is released on Tuesday at 9 a.m. Beijing time (or 9 p.m. EST on Monday), according to economist estimates compiled by Reuters. Some more good manufacturing news could then come out of the U.S. on Tuesday, when the ISM manufacturing index is released. And on Thursday morning, the Bureau of Labor Statistics will release the granddaddy of all economic reports, the Employment Situation. Economists are expecting to learn that the U.S. logged the fifth straight month of plus-200,000 job growth.

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If we really do get some good news about global growth, that should boost copper demand, because a stronger economy means more industrial production. And some major players in China might be acting now before the data confirms what economists are already calling for.

"Premium is being paid in China for prompt delivery [of copper] due to the speculation that Thursday's jobs report in the U.S. will be optimistic, helping the economy, and local banks may be easing in China their loans as tomorrow their PMI index may have improvements," RBC Capital Markets metals expert George Gero wrote to CNBC.com.

"Fundamentally, the rally makes sense," echoed Brian Stutland of Equity Armor Investments. "Traders are anticipating continued demand from China, probably forcing the price of copper higher."

If "Doctor Copper" is right, then, the global economy is primed to ace its latest checkup.

—By CNBC's Alex Rosenberg

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