In February, I presented my analysis of copper and gold/copper price trends in a post titled, Dr. Copper Prescribes Gold. Now, it's time to update both charts.
In the previous analysis, most readers preferred a conservative outlook for copper futures prices, predicting a drop to only the equal distance in the CD part, which is $2.45. Since then, the price has declined, but not as rapidly as anticipated.
Let me show you the updated copper futures chart below.
As expected, the price action on the Rising Wedge pattern's support played out in textbook fashion, with the price breaking below it and then spiking up to retest it before continuing its downward trend.
The price has now reached a double support zone formed by the purple moving average and the black horizontal trendline, between the $3.78 and $3.83 levels.
The RSI indicator has already turned bearish by sinking below the key support of 50, which could further support the breakdown of the aforementioned double support.
The target levels remain unchanged as none of the previous peaks have been surpassed. The nearest target is at $2.45 (CD = AB), followed by $2.02 (large 2nd move = large 1st move down), and the farthest target is the valley of 2008 at $1.25.
The recent release of US GDP data, which was well below expectations, and the contracting Chinese manufacturing statistics are supporting a bearish outlook for the copper price.
Loading ...Moving next to the gold/copper ratio chart.
For this update, I am presenting a tactical map that focuses on recent changes in price action, in contrast to the previous large-scale quarterly chart which provided a broader outlook.
This new chart allows us to see the shifts that have occurred since February, which may not be apparent on a longer time frame.
The initial phase of the reversal began in 2021, marked by the first blue leg that started from the 368 oz valley, leading to a ratio peak of 542 oz last summer.
Following this, there was a significant correction contained within the red downtrend channel. This correction continued until the ratio reached the 61.8% retracement level, known as the 'golden cut,' around 434 oz in February of this year. It was at this point that I alerted you about the major reversal.
Since the previous post was published, the ratio has increased by 10% and currently stands at 514 oz, indicating the start of the blue leg 2. It has surpassed the purple moving average, broken out of the red downtrend, and exceeded the previous high of 498 oz.
The next obstacle is the peak of the first upward move at 542 oz, which the current uptrend is expected to surpass for confirmation.
The RSI indicator is also signaling bullish momentum, with its current position above a key support level and a rising trend.
Looking ahead, the target for the second bullish move can be found at the same distance as the initial reversal, which is around 616 oz. This level also coincides with several important inflection points from 2019-2020.
Beyond that, the next significant barrier is at the top of 2020, which is located at 776 oz, and would represent a significant move up for the ratio.
In the previous post, most readers believed that “something similar to the Great Recession may be on the horizon”, according to the poll results.
While the trend is currently bullish for the gold/copper ratio, it suggests a potentially gloomy outlook for the global economy, as investors seek the safety of gold.
Let me know what your thoughts are on this outlook in the comments below.
Intelligent trades!
Aibek Burabayev
INO.com Contributor
Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
Dear DJ Whiting,
Thank you for your insightful comment on the topic. I agree that the New Green World will require significant amounts of copper and other metals as well as future infrastructure building and repairing.
Copper futures price is contained within a range between $2 and $5, and it may fluctuate within that range based on current economic conditions. However, on a larger scale, this range reflects a massive consolidation phase after a price run-up to $4.7 level, which may indicate the potential for an upside continuation after the consolidation is complete.
The recent decision by the Fed to lift interest rates may impact the price of copper futures as real interest rate
finally turns positive (5.25% vs 5%). Additionally, the monthly inflation may be cooling down and the longer-term trajectory of inflation could fit the Fed's target.
Thank you again for your comment and for sharing your perspective on the topic.
Best regards,
Aibek
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As I mentioned in my post, the current copper futures price may fluctuate within a range between $2 and $5, reflecting a massive consolidation phase after a price run-up to $4.7 level. However, this range may indicate the potential for an upside continuation after the consolidation is complete.
Regarding gold, while it may climb higher due to factors such as banking and currency collapses, inflation, and inverted bond yield curves, it's essential to consider that its price is influenced by various factors such as global economic conditions, geopolitical tensions, and supply and demand dynamics.
The recent decision by the Fed to lift interest rates may impact the price of copper futures, but other factors such as future infrastructure demand and global economic conditions may also play a significant role. While monthly inflation may be cooling down, it's important to monitor the longer-term trajectory of inflation and its potential impact on copper and other commodities.
Thank you for sharing your perspective on the topic.
Best regards,
Dear Mr. Li,
Thank you for a warm feedback and for mentioning the issue of low copper inventories.
While it's true that copper inventories are currently at historical lows,
it's important to consider that the price of copper is influenced by many factors,
including global economic conditions, geopolitical tensions, and supply chain disruptions.
As I discussed in my article, the price of copper futures is currently at a double support level, and whether it breaks down or bounces up remains to be seen.
Additionally, the recent decision by the Fed to lift interest rates may have an impact on the price of copper futures, as it reflects the market's perception of future economic conditions.
In summary, while low copper inventories may indicate increasing demand, it's crucial to consider all the factors that affect the price of copper. We'll need to wait and see how the market develops.
Thank you again for your comment.
Best regards,
Aibek
Hi Aibek,
Thank you very much for your insightful article.
May I ask what is your view about the bullish saying that the inventories of copper is in historical low?
Cheers,
Alan Li
The Green Deal will require 40 times more copper which has not increased capacity since the 1960s. Copper cannot stay down even in a severe recession as the core Govt policy of EVs requires massive increases. We are coming into the 90 year cycle of war and that requires copper too.
Gold undoubtedly has to climb higher (banking collapses, currency collapses, recession, grossly inverted bond yield curve, long term inflation and war). Real Interest rates are finally negative as people are waking up to the fact that inflation will be higher for longer because inflation cannot be tamed while there are energy shortages (cost push inflation) which can only be fixed by increasing supply.
I am therefore bullish on physical gold, gold producers and copper but also oil and gas, uranium and rare earths.
Biden will change his mind about LNG. He will say he was colour blind and LNG is green, while he continues to demonize coal and oil.