The Curious Case Of Copper’s $3 Support

 | Nov 11, 2020 09:09

Copper’s support at above $3 per lb has been unbroken for 25 sessions in a row. It has chalked up seven winning months out of eight, a phenomenal run for a metal many bullish investors in commodities had given up on just two years ago.

Year-to-date, copper is up 13%. That’s double its 2019 return of just under 6%. Prior to that, its performance was woeful, losing 19% in 2018.

According to commodities lore, one can predict world economic trends by studying the price of copper. The metal’s diagnostic ways are so fabled that it was even called ‘Dr. Copper.’ 

The red metal’s golden era was in the previous decade. It started January 2000 at 86 cents per lb on the New York Mercantile Exchange’s COMEX division and finished December 2009 at $3.33. A whopping 287% growth. Clearly, copper wasn’t just reflecting the economy in that decade—it was front-running it.

But that story unraveled over the next ten years.

Although global GDP growth was almost exactly the same this decade as the last—expanding by a compounded 30%, or an average of 3% per annum, between 2010 and this year—copper took a different path.

COMEX prices of the red metal went from their January 2010 start of  $3.33 per lb to finish 2019 at $2.80—a 15% slump.

Hero To Zero … And Back!/h2

In other words, in a span of just two decades, copper as the world’s leading industrial metal, had gone from hero to zero.

Why the total collapse in correlation?

One reason was that the latter half of the 2010-2019 decade was filled with fears of a global economic slowdown that put a cap on copper prices. For instance, the Trump administration’s trade war with top metals buyer, China was one the biggest antidotes to higher copper prices.

But this year, the infrastructure rebuilding required in China after the COVID-19 outbreak has boosted copper prices since April. This was despite the malaise in the global economy from the pandemic.

Back to the present: Where’s copper headed?

$3 Support May Be Tested, But Rebound Seen/h2

At least two chartists think a break of the $3 support for COMEX copper is in the offing. But they also argue that any downside will be brief as the metal remains fundamentally strong.