Copper has gone up since the end of last year and there may be room to run. Here, a doorway in British Columbia is covered with a copper cover.
James MacDonald / Bloomberg
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Copper has gone up recently, but that could be a sign of more gains – not weaknesses – ahead.
The price of the
continuous copper contract
(HG00) has gone up almost 40%, to $ 4.14 per pound, since September 23, the start of a broader rally in more risky, economically sensitive and out of safer assets. The last time copper was so high was in mid-2011. The industrial metal is up almost double since March 23, the basis for risk funds among the early days of the pandemic.
With millions of doses of Covid-19 vaccine already administered – and billions expected by the end of the year – investors are confident that the economy will open up and continue to be a key driver behind the rally in cycling property. Helping the case for further rally: a pent-up demand created with fiscal and monetary stimulus.
Here are some other signs that copper can hold a rally, and wildly there:
First, the copper-to-gold ratio has more room, which reflects the value that investors assign to copper versus the gold of the safe haven. The ratio is currently at 0.13, meaning that the unit price of copper is slightly more than a tenth of the unit price of gold. The long-term average of the ratio is almost 0.3, according to Pavilion Global Markets, so if the copper valuation moves to reflect historical norms, and keeps the price of gold where it is, the price can rise. copper will soon double. The price of gold has also been very volatile.
Then there is a historical precedent that Jefferies product analysts point out. In the last bull market at copper, the price rose by more than 6 from bottom to top – taking it from 63 cents at the end of 2001 to $ 3.93 in April 2008. A similar price increase from copper bottom March 2020 2020 it to $ 12 during the extension. Other cyclical products are also indicating greater strength for risky assets in general, with oil prices up more than 50% from September 23. “If the price of oil can surprise the upside, the same applies to copper, ”wrote Jefferies analysts.
Finally, the key supply of promising copper potential is the limited supply from producers. Capital expenditures by producers, or large investments in increased production capacity, have been flat in the past year, running at about $ 15 billion per quarter in total from the eight most players.
Copper backs have an abundance of tails. Before entering the commodity, however, investors just need to be sure that the vaccines are monitoring for the pandemic until the economic expansion catches on.
Write to Jacob Sonenshine at [email protected]