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Potential Resolution Fuels Spike In Copper

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Potential Resolution Fuels Spike In Copper

The price of copper edged higher in overnight trading. This, after moving higher Monday on news that the United States and China put their trade row “on hold,” according to Reuters.

The de-escalation in a potential trade war between the world’s two largest economies eased concerns and opened the markets to start the week.

Early indications this morning show the market in Shanghai hit a one-week high. Shanghai lead futures jumped 3.6 percent to their highest since October, tracking last session’s gains on the London Metal Exchange. Analyst point to the decision to step back and evaluate potential tariffs on China as the driving factor.  “It appears that America and China have moved towards a trade deal, which will mean the expansion of U.S. goods purchased by China, and thus, avoiding the prospect of an out-and-out trade war,” Kingdom Futures said in a report.

Copper opened for trading this morning at $3.12 per pound. Click on the chart to get an up-to-the-minute update on the price of the red metal.

How High Will Copper Go?

No one has a crystal ball when it comes to the price of copper. Each week something happens that affects the price of the red metal. One week it can be trade talks with China. Another week it could be nuclear deals with Iran, or future talks with North Korea. Another week it could be the Fed raised interest rates, or not. The dollar plays a role. As do inventory levels in London.

The scenarios are almost mind-numbing! Despite the influences, copper has withstood the recent battles and stuck around the $3 a pound level. Frequent tED contributor Andrew Hecht, of Seeking Alpha, ventures to ask, what if? What if we are on the verge of copper going up to $4 per pound, or even higher?

“While the dollar has recovered, and rates are heading higher, economic growth around the world continues to be supportive for the commodity that is a bellwether for building infrastructure,” Hecht says about the red metal. “The next significant technical level for copper futures above the December peak is at $3.44450 per pound, the December 2013 high. Above there, we could see price congestion at the $3.80 to $4.00 level. The all-time peak stands at $4.6495 per pound, the price from February 2011.”

Could Oil Help Fuel Copper Prices?

Hecht also points to the significant rise in the price of oil from $42.05 per barrel in June 2017 to over the $72 level recently having a significant impact on the price of copper. “Higher energy prices increase the cost of transporting copper and other commodities from points of production to areas of consumption in the world,” says Hecht. “The increasing price of oil is also a sign that the commodities asset class could be experiencing the next leg to the upside in a secular bull market that could last for coming years given the levels of economic growth around the globe.”

As usual, we will keep an eye on all things pertaining to copper and report it here.

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Jim Williams

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