In terms of copper, its a big bull trend its risen strongly on the perception of a V-shaped recovery in the global economy and speculators are now heavily long. If you are already long we think stops should be tightened or a gold hedge used against long copper trades logic explained below. For shorter term traders copper can be seen as a potential swing trade short on price action confirmation. In terms of copper firstly why has it been in such a strong bull trend?
Traders often use the term “Doctor Copper” Because what copper is doing very often indicates the overall health of the global economy. Copper of course is one of the most widely used raw materials in industry and also is heavily used in many consumer products. In general terms, rising copper prices should indicate strong demand and a growing global economy. On the other hand, falling copper prices indicate low demand and warn of a global economic slowdown.
The Copper-Gold Ratio A Warning of A Reversal in Copper
The copper-gold ratio is calculated by dividing the copper price (per lb) by the price of gold (troy oz). Why is it important? Because Copper prices have soared while gold prices have been weak. In terms of the gold/copper ratio (see the chart at the end of this article) it’s crashed to levels last seen a year ago before we had the pandemic. Also, its as dislocated from the 200-day moving average by the most since 2010.
In terms of gold its traditionally seen as a safe haven in times of uncertainty and risk-off so the extreme in the ratio shows extreme risk on in the markets. We think investors are too bullish on stocks and the outlook for the global economy and if stocks fall, copper will fall with them.
Stock market buying very often spills over into speculators buying copper as a proxy trade. The logic of this is if stock markets are strong then the global economy must be healthy. If we look at positioning in both stock markets and copper speculators are buying heavily while smart money commercial hedgers are selling against them. The divergence between the two groups warns of a correction before higher prices see the daily and weekly charts below and also the Copper/Gold ratio.
Copper Gold Ratio
COPPER WEEKLY CHART: Copper has been in a strong up trend since April and we are now above the July highs and we have a full candle outside of the outer Bollinger band (the orange line) which indicates extreme greed. While we have a big up trend some counter trend action is likely long trades can hedge with gold and tighten stops and swing traders can look for shorting opportunities see daily chart for more info.
COPPER DAILY CHART: We have broken out to the upside above October Highs if Long look to hedge with gold and tighten stops – in terms of short after 3 candles outside the outer BB shorts can be initiated back within it clear of today’s low stop clear of the high looking for reversion to the mean the mid BB (Green line) with possible run on to 3000.
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