Monetary policy remains unchanged for the moment

Global monetary policy has remained accommodative, with interest rates remaining at or near zero in many developed economies. However, we are starting to see inflation numbers rise, adding further pressure to already negative real returns in many of these markets. Such an environment makes non-interest-bearing investments like copper, gold, silver and platinum more attractive because the potential for price appreciation remains.

The recent “hawkish surprise” at the June Fed meeting sent the dollar higher, naturally causing copper to fall sharply. However, Jerome Powell sought to dispel any notion of an impending rate hike in his subsequent testimony to Congress and maintained that inflation should fall back to the Fed’s longer-term target and thus keep the door open for policy. relaxed monetary policy in the United States.

Supporting Fiscal Policy – US Infrastructure Bill

The infrastructure bill proposed by US President Joe Biden is expected to benefit a number of sectors of the US economy – and many of them are increasingly dependent on copper.

Renewable energy projects rely on copper because it has one of the highest thermal and electrical conductivity profiles of any metal. Biden’s bill currently emphasizes switching to greener energy.

Copper is also expected to see a boost in the form of upgrading existing traditional infrastructure – primarily roads and telecommunications – as the conductive metal is widely used in wiring.

Graph showing the increase in global copper use:

Source: ICSG The World Copper Factbook 2020

China’s insatiable demand

China remains by far the largest importer of copper in the world and has played a major role in increasing the price of the metal over the past 15 months. China has, however, expressed its displeasure with the high level of copper prices and threatened to sell strategic reserves in an attempt to dampen recent gains in the commodity. Despite this, China’s growth ambitions continue to increase demand for the metal.

Diagram showing the increasing use of copper in Asia (China)

Source: ICSG The World Copper Factbook 2020

Key technical configuration

Copper has been on the long term trendline since March 2020, reflecting the pace of the metal’s advance. In the last Top Trading Ideas update I had set a target of 10,000 which was eventually hit before hitting the new high at around 10,745.

Since then, copper has traded within what appears to be a bullish flag – a bullish continuation pattern – and has just bounced off a confluence area (yellow rectangle). The confluence zone was established at the level of the long-term ascending trendline and the lower bound of the bullish flag that took place around the 23.6% Fibonacci level (taken from the 2020 low to the high of May 2021). A strong rebound above this area remains favorable to the long term uptrend, once again highlighting the 10,000 level.

However, it should be noted that the recent advance may simply indicate a period of continued trading in the bullish flag. A breakout and close above the bullish flag is required before the bullish pursuit scenario becomes more believable.

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