Watching Dr. Copper | Searching for Alpha
By Craig Hemke
As the brand new 12 months begins, few belongings are performing higher than copper. So the query turns into, is that this simply an anomaly, or is that this the beginning of a serious new uptrend in commodities?
Let’s begin with some charts. First, this is the present entrance month Mar23 copper contract since 2022 ended and 2023 started. As you’ll be able to see, it is up 8.3% year-to-date…which is barely seven days.
Subsequent, let’s take a wider view with the intention to assess whether or not or not this rally has any longer-term technical implications. It might definitely seem that it does. Notice the breakout above $3.90-4.00 in addition to the pending “bullish cross” of the 50-day shifting common and 200-day shifting common.
And now let’s stretch out even wider and try the weekly chart. What does it reveal? In the same chart sample to COMEX gold and silver, you may be aware that copper is again into its flag/consolidation vary after discovering assist late final 12 months proper the place it ought to have discovered it, within the space round $3.20.
So what is going on on right here? Is that this a sign of a renewed bull market in commodities? Is that this an indication that Chinese language commodity demand is rising now that their failed “Zero Covid” insurance policies have been ended? May copper and different metals escape to the upside later this 12 months and start to speed up larger in value?
The solutions to those questions are: Sure, sure, and sure.
We wrote about a few of this final week in our annual macrocast and I encourage you to learn it now if you have not already. What’s most attention-grabbing about commodities in 2023 is that the following rally will happen in opposition to a background of sharply falling and quickly dwindling world stockpiles. From that macrocast submit, this is a chart of the 5 main industrial metals and their respective stock ranges on the London Metals Trade:
However let’s look extra intently at copper. Here is a chart that reveals copper inventories all over the world. As you’ll be able to see, this isn’t only a London concern. Copper shares are falling globally and so they have been for over a decade.
So now scroll up and look once more at these value charts. Are they telling us one thing? Are they warning us about what’s to return?
Properly, think about this, too. There is a man named Zoltan Pozsar who works for Credit score Suisse. He made his bones analyzing and finding out the short-term credit score markets however, because the Ukraine Conflict started and the U.S. subsequently sanctioned Russia by freezing their international foreign money reserves and excluding them from the SWIFT system, Pozsar has written extensively in regards to the coming of a “new Bretton Woods” system, the place gold, oil, and different commodities shall be remonetized.
So what if Pozsar is right and bodily commodity demand is about to soar within the months forward? That is the place it will get attention-grabbing. In the event you’re a valuable metallic fanatic, then you definately already understand how The Bullion Banks have overleveraged and rehypothecated bodily gold and silver for many years. They’ve carried out this with the expectation that neither metallic will ever be remonetized. Possibly they’re proper. However what in the event that they’re fallacious?
And what if I instructed you that it is not simply bodily gold and silver which have been overleveraged and rehypothecated? Copper is on this similar boat. Not as closely as gold however extra so than silver. How “attention-grabbing” might the scenario develop into if bodily copper demand drains these dwindling world stockpiles? Properly, let’s seek advice from Pozsar’s most up-to-date research piece the place he refers to this chance as an “existential risk” to the banking system.
In abstract, hovering copper costs to start 2023 are very doubtless signaling one thing however what that “one thing” has but to be decided. Nonetheless, relaxation assured, we’ll be watching copper costs very intently within the weeks and months to return and any breakout to the upside often is the last warning signal that epochal modifications are underway.
Editor’s Notice: The abstract bullets for this text had been chosen by Searching for Alpha editors.