The price of copper pulled back from $4.89, which is a new all-time high, as the red-metal comes under pressure amidst a fall in demand from China, leaving trading and investors divided as whether a meaningful price top has formed this week.
I suspect that the latest pullback will provide a dip-buying opportunity as the fundamentals for copper appears very strong right now, alongside the technical backdrop. Other metals, such as gold and silver have been taking the front seat over recent days while copper corrects lower.
Copper, often referred to as the red-metal, is the world’s third most consumed precious metal after steel and aluminium, and has many uses, including electronical, construction, and power transmission. Copper is truly an industrial metal.
The red-metal tends to do well in a booming world economy. When COVID-19 cases rise, and global consumption comes into question, we tend to see copper moving lower. An increase in Asian and Indian COVID-19 cases could be another reason why copper is pulling back from $489.00 this week.
Still, we have to remember that the fundamentals are on copper’s side. Clean energy policies, especially in the United States, and the Biden administration’s Green New deal, and green energy policies parts of Europe, favour the copper bull case.
Encouraging PMI manufacturing data globally, post pandemic demand for copper, and we also have to consider the ongoing low inventory and supply chain disruptions the metal faces. Copper has more positives than negatives right now.
Looking at sentiment metrics, the average mood towards copper is extremely bullish right now. This could mean we will see a significant correction in the red-metal as retail traders typically have poor market timing and enter the trend too late.
Copper Short-term Technical Analysis
The one-hour time frame shows that copper is currently trading inside a falling price channel, between the $478.00 and $450.00 levels. Falling price channels are typically considered to be bullish reversal patterns.
According to the overall size of this typically bullish price pattern copper could stage a $28.00 directional move once a breakout from the channel takes place.
Due to the bullish price trend, buying from the bottom of the channel appears to be an appropriate strategy right now.
Copper Medium-term Technical Analysis
The larger picture for copper prices remains very bullish, and continues to show a massive inverted head and shoulders pattern on the weekly time frame, which remains triggered while the price trades above the $400.00 level.
According to the overall size of the bullish reversal pattern, copper prices could rise still towards the $700.00 level over the medium to long-term before a meaningful correcttion takes place.