Why the rise in copper prices could signal better times ahead
The rise in the price of copper has seen the base metal rise as much as 12% since May 25 this year, which could signal better times for the economy. The red metal has long been seen as a leading economic indicator as the raw material is present in all aspects of the economy.
A recent rise in copper prices may indicate better times for the economy, although many economists still worry about an impending recession.
Copper prices have long been seen as a leading economic indicator as it is used in various sectors of the economy. In essence, rising copper prices can signal increased demand and thus increased economic activity, and vice versa for when copper prices fall.
After falling as much as 17% from their peak in early 2023, copper prices have made a recovery, jumping as much as 12% from their May 25 low to a high of $3.96 per pound on Thursday.
“Incremental upside follow-through would allow a breakout into a positive medium-term trend that would indicate an improving economic picture. Secondary resistance is near 420 to $4.30 per pound” said Fairlead Strategies founder Katie Stockton in an analysis published late last week.
If copper reaches the secondary resistance levels identified by Stockton, it would represent a rally of more than 20 percent from its bottom in late May.
Carson Group market strategist Ryan Detrick would not be surprised by a continued rise in copper prices, as he has been calling for continued economic growth throughout the year.
“They say copper has a PhD in the global economy and this latest strength runs counter to the many concerns we keep hearing,” Detrick said on Friday. “With housing at the bottom and consumer sentiment still quite strong, we think there is a very good chance the economy could avoid a recession in 2023. Seeing copper improve recently could be another sign that Dr. Copper is preparing for something.”
Rising copper prices are not always driven by increased demand for the commodity, but can be influenced by other factors. Fundstrat’s Tom Lee said on Friday that the recent rally in copper could potentially be attributed to quarter-end positioning dynamics, while Interactive Brokers chief strategist Steve Sosnick said declining copper supply could be the cause.
“It is noteworthy that copper futures are in greater backwardation than normal. As prices rose in the last month, the futures contracts in the first month rose faster than in the previous months. This may indicate some short-term relative scarcity that is pushing up prices,” said Sosnick.
Sosnick also said that recent interest rate cuts in China may affect copper prices more than broad economic strength “because other key commodities like oil hardly signal economic strength.”
Whether the recent surge in copper prices is driven by economic strength or declining assets, the sustainability of the rally is likely to be determined, and that’s why investors should pay attention to where copper prices go from here
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