The copper market has been attracting a lot of investor attention since the start of the year, with prices soaring to a 10-year high this week.
However, one analyst warned investors that the copper market was looking a bit volatile and predicted that the gold market was likely to remain stable.
Mike McGlone, senior commodities analyst at Bloomberg Intelligence, said copper prices were benefiting from growing expectations that the U.S. economy would recover from the Covid-19 pandemic faster than expected.
Base metals are experiencing significant supply and demand imbalances as the global economy faces severe supply constraints and demand growth. McGlone said copper is not only benefiting from the economic recovery, but also demand is returning as governments around the world aggressively promote clean renewable energy.
“In a world where technology and clean energy are developing rapidly, the metal should continue to outperform the consumer price index. Fossil fuels are being replaced by technology, and that means demand for metals, “McGlone said.
High-grade copper futures for March are now trading above $4 a pound, near their highest level in a decade. However, McGlone said copper’s recent rally may be overdone and it may be time to refocus on gold, which has found strong support after hitting a seven-month low last week.
“Copper, one of the top performers in 2021, compared to gold, which is at the bottom, increases the risk of some pullback, in our view. A little normalisation of the stock market rally would be the main potential driver for gold to bounce back from its good support of around $1,760, “he said on Wednesday.” Decarbonisation and electrification mean replacing fossil fuels with technology and demand for metals. Rising debt to GDP ratios and levels of quantitative easing provide strong support, while gold and silver also provide diversification benefits.”
McGlone said the key driver of gold’s rise was bond yields. US 10-year Treasury yields are now above 1.4 per cent, their highest level in a year. McGlone said 1.5% is a key resistance level and will be a good test of the gold market.
“We believe that gold’s bullish run, supported by unprecedented global debt /GDP growth and quantitative easing, will be more persistent than our bullish view on copper, where a demand-driven post-viral recovery is the main support,” he said.