2019 was an exceptionally strong year for precious metals. Silver is up 14% on the year after a big rally in July and August; gold is up 17% and is at prices not seen since 2013; platinum is up 17%; and palladium has outshone them all, rising 54% on a steady stream of all-time highs.
With 2020 on deck, the rally in precious metals has some convinced that a catch-up trade is in store in the base metals, and one base metal in particular: copper. Copper futures are up 13.61% since making a new three-year low on Sept. 2. That’s the metals biggest move higher since the beginning of the year.
Copper is the third most consumed metal in America behind iron and aluminum. But what makes it unique from other metals is its tendency to move in-line with economic activity because of its use in manufacturing. This can cause it to act as a leading indicator of economic growth.
As a result, a rise in a country’s economic forecasts could be seen as a tailwind for copper, just as a rally in copper could indicate the market is bullish on economic growth.
In this case, it appears both are true.
Copper’s December rally is likely the direct result of trade relations between the U.S. and China ending the year on a high note. With new tariffs off the table, at least for now, one of the biggest—if not the biggest—hurdles for global growth in 2020 has been removed.
Looking ahead, several analyst teams are bullish on copper next year. Goldman Sachs’s commodity research team called copper “our most bullish view,” while analysts at Jefferies said a combination of a global supply shortage, crowded short positions, and increasing demand have copper “poised for liftoff.” JPMorgan analysts added that “Hopes for a sustained recovery in global manufacturing have boosted demand prospects” for copper,” according to the WSJ.
On top of the improving global macro outlook, another bullish sign for copper is the 2019 rally in gold and silver—it’s not uncommon for base metals to follow their precious metal counterparts.
All told, copper is still about 5.7% off its 2019 highs made in April, and in the interim, it appears to have run into some technical resistance at the $2.83/pound level. But the recent rally suggests an improved outlook for global growth in 2020. And after a year in which the market was worried at various times about the economies of China, Europe, and the U.S slowing (or potentially slowing), that’s something we can all cheer about.
All performance data is as of Dec. 24, 2019. The author has no positions in any of the commodities mentioned.
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