Barron’s Got a Forecast After Copper’s 7% Rally in July

Dr Copper posts solid gains in July…

Barron’s is asking if copper is due for a correction.  Specifically:

“The base metal has also been lifted by the weaker U.S dollar and solid demand from China, but French bank Natixis is concerned the rally has mainly been driven by speculation – net long positions are at the highest since April – and that could lead to a correction.

The hike in prices have stemmed from the belief that demand in refined copper will increase in order to replace the loss from scrap and lead to a further tightening of a copper market that is expect to be in deficit near to medium term. We dispute this.”

However, as they continue:

“Stronger demand for copper will remain supportive of prices in the near term.” But, rising supply and an expected cool down in the Chinese economy should bring the market back into a small short-term surplus near the beginning of Q4-17, and keep the price rise contained. We have revised our copper forecast slightly upwards to take into the price hike and expect the correction to be drawn out over Q3 2017.”

Deutsche Bank’s chart of the best performing assets in July, 2017, and Copper is only behind crude, which kind of puts the whole “Dow 22,000” as hype in the face of rising commodity prices:

In fact, as seen above, three of the top 5 performers last month were commodities.

Though a prediction on copper’s next move is anybody’s guess.  The graph below shows the infrastructure spend trade last November, and after falling amidst what has turned out to be no major infrastructure spending plans yet this year, it looks over bought now, but the rally does not signal a collapse from a mere technical analysis:

Higher lows, higher highs, not 50-day though the 200-day death cross, tight supply, increased demand, and a weaker dollar are all pointing to higher prices, but there is no denying it looks overbought at this point. If Chinese speculation is the cause, the integrity of the data will be difficult to deconstruct.

At this point, copper looks strong, but where the price is going from here is impossible to predict no matter who makes the forecast. Furthermore, and when comparing copper to gold and silver, we know what a difficult, gut-wrenching July 2017 it was.

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