- A late February peak runs out of steam and makes a comeback
- LME and COMEX stocks rise
- Inventories can be a mirage
- Goldman Sachs makes a bullish call- Three reasons for higher copper prices
- Heading for new high- Copper could go parabolic
In March 2020, nearby COMEX copper futures traded to the lowest price since June 2016, when it reached a bottom at $2.0595 per pound. In February 2021, the price traded at a decade high at $4.3630 on the continuous contract. Copper fell during the height of the global pandemic’s impact on markets across all asset classes. The price moved from a four-year low to a ten-year high in a little less than one year.
The trend in copper is higher, and we could be on the verge of a move to prices above the 2011 $4.6495 peak. Copper is a building block of infrastructure worldwide, but it is also a metal with many industrial applications.
A late February peak runs out of steam and makes a comeback
The trend of higher lows and higher highs in the copper futures market remained intact at the end of last week.
After reached a continuous contract peak at $4.3630 in late February, the highest price in a decade, copper pulled back below the $4 level, reaching $3.8760 in early March. Since then, the price has been climbing and was back above the $4.33 level at the end of last week. Open interest, the total number of open long and short positions in the COMEX copper market moved from a low of under 162,000 contracts in May 2020 when copper’s price was under $2.40 per pound to the 247,572 level at the end of last week with May copper futures settling at $4.3360. Rising price and increasing open interest is a technical validation of a bullish trend in a futures market. Weekly price momentum and relative strength indicators were well above neutral readings and rising. Weekly historical volatility at 18.76% indicates the bullish trend is slow and steady. The metric reached a high of over 37% in May 2020.
Copper backed off from the February decade-high peak, but the price came storming back and is now a stone’s throw away from an even higher high.
Heading for new high- Copper could go parabolic
Copper was below the 2011 high on Friday, April 23. The LME price was under $10,000 per ton. Goldman Sachs’ forecast is for $11,000 per ton in the next twelve months. However, as “copper is the new oil,” the longer-term price expectations are far higher as they see demand rising much faster than supplies. Goldman sees copper at $14,000 per ton in 2024 and $15,000 per ton in 2025, over 50% higher than the current price approaching the 2011 high.
Bear markets often take prices far below where logic dictates. If you have any doubt, look at an oil chart from April 20, 2020, when NYMEX futures fell to the negative $40.32 per barrel level during a tidal wave of selling. Bull markets have a habit of moving to levels that are far higher than analysts expect when a buying frenzy creates parabolic moves. Lumber was at $251.51 per 1,000 board feet in April 2020 and moved nearly five and one-half times higher at the recent $1374.70 level. Copper is not the only commodity rallying these days. Grain prices experienced explosive gains last week. Palladium, a thinly traded precious metal, rose to a new record high at $2928 per ounce last Friday.
Copper has bullish winds behind its sails from a fundamental and technical perspective. The red metal looks set to climb to new heights as the copper bull market appears firmly intact. When markets trend, picking a top can be a tragic mistake. Sit back and enjoy the ride, even though it could become bumpy. The risk of corrections rises with prices in bull markets.
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Trading advice given in this communication, if any, is based on information taken from trades and statistical services and other sources that we believe are reliable. The author does not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects the author’s good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice the author provides will result in profitable trades. There is risk of loss in all futures and options trading.
