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Copper Hits A Bump In The Road

By Jim Williams

The price of copper remains at almost two-year highs, but the three-week rally after the Presidential election has lost some momentum this week.

For the second day in a row, copper prices moved lower on Tuesday. The COMEX copper futures contract for March 2017 delivery closed at $2.60 per pound—a fall of 2.3 percent.

Copper prices skyrocketed after Donald Trump’s win. However, those of us who have been following the red metal know, copper prices were starting to improve even before the US presidential election. In addition, expectations of better-than-expected demand from China are supporting copper prices along with Trump’s proposed infrastructure investments.

“We continue to believe that industrial metal prices are primarily driven by improving sentiment rather than improving fundamentals,” wrote Carsten Menke, commodity research analyst at Julius Baer. “While better growth in the United States would be positive for metals demand, this seems to be more than reflected in today’s price.”

“It will take more than Donald Trump to keep copper rallying,” Freeport-McMoRan’s CEO, Richard Adkerson, recently said. “For copper demand to be robust requires a positive economic situation in China, in the world’s global economy.”

China’s stronger-than-expected economic data released in the past month would agree with Mr. Adkerson. That data, along with increased buying from Chinese investors, has helped improve sentiment in the market until this week’s decline.

So Which Is It? Bearish or Bullish
Some analysts expect copper to sustain the recent gains. According to the Sunday Morning Herald, “Macquarie believes the metal’s prices will remain elevated thanks to an expected increase in Chinese stimulus and US infrastructure spending.”

Goldman Sachs remains bearish on copper. Its price forecasts are much lower compared to copper’s current price levels. Several other leading brokerages also expect copper to pare its post-election gains.

While Trump’s proposed infrastructure investments would boost US copper demand, copper would also need support from China to support its recent rally. Therefore, it’s crucial for investors to keep track of Chinese copper demand indicators.

The Dollar Trumps the Market
“The dollar is once again King and that will have important ramifications for markets across all asset classes as well as for the U.S. and world economies,” says frequent tED contributor Andrew Hecht of Seeking Alpha.

Hecht sums it up nicely, “Every administration has favored a strong dollar policy. However, this President is likely to use the dollar like he used poll numbers during the election or ratings when he was the star of the hit TV show The Apprentice…President-elect Trump will view the nation’s currency as a reflection of the success or failure of his agenda. Therefore, it is likely that the recent move in the greenback is only the beginning of a rally that will take the currency to a much higher level.”

If that is true, we will have to wait and see if the price of copper follows suit and gets its steam back.



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