Copper and gold have been winning bets as both the industrial and precious metal notch big gains this year. Copper faces some technical trading hurdles, though, and it may pay to wait for a pullback before buying.
Copper is having a great run. Front-month futures in New York are pricing copper around $5 per pound, up more than 25% since the start of the year.
Gold is up around 16% this year and traded over $2,400 per ounce on Friday, up 0.9%, based on spot prices.
Several forces are fueling copper’s run, including demand trends like utilities that are upgrading grids, usage for electric vehicles, and home-building. Energy demand for data centers running AI apps and servers is also lifting demand for copper.
There’s also a supply squeeze with the U.S. awaiting shipments of copper from South America and Australia. COMEX copper prices may keep rising until shipments of the metal used in the U.S. power and construction industries arrive from South America and Australia.
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Technical factors are lifting copper too. Commodity traders who had taken out large short positions are scrambling to buy physical copper on U.S. exchange
CME
,
according to news reports. Traders who had taken those positions had bet against prices rising. Now that those bets have gone wrong, they must deliver the physical commodity.
All that has made for a bullish setup, but traders in futures markets don’t see demand holding up, at least in the near term. Copper futures that are set to expire next year are trading about 6% lower than front-month futures contract, suggesting that demand is expected to fall.
Because copper closely tracks economic activity in China, falling Chinese government bond yields and other bearish economic pressures mean that $4 copper is more likely than $6, according to Bloomberg Intelligence senior commodity strategist Mike McGlone.
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Long-term demand trends appear intact, but some analysts recommend waiting for a pull-back before buying.
Bruce Zaro, managing director at Granite Wealth Management, sees $4.72 as a key level, noting copper had a “double top breakout” at that price when it was already near the top of a trading band, according to a note on Friday. “Wait for a pull back to that break out point before even thinking about chasing here or, optimally, at $4.44, the first support level,” he wrote.
Zaro notes that the
United States Copper Index Fund,
an exchange-traded fund, isn’t up as much as its underlying metal. It recently traded around $30.75.
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“Investors would be wise to wait for a pullback to at least the $26.50 range or better yet, the bottom of its trading range, $23.50,” he writes. “That said, looking to do some nibbling on such a pullback could make sense.”
Corrections & Amplifications: Copper is trading around $5 per pound. A previous version of this article incorrectly stated the price per metric ton.
Write to laura.sanicola@barrons.com