In considering the daily chart for copper, there are several questions that instantly come to mind. First, is copper any longer the bellwether it once was – Dr copper as it was affectionately known. Second, and leading on from this, has the characteristic of the metal changed for ever, and finally where next for the red metal following the last few days of dramatic price action on the daily chart. Let’s take the first of these.
Like many commodities in the world, copper is now increasingly seen as a tradeable investment, rather than as the simple commodity it once was. Stockpiling by China has seen to that, and copper is not alone in this respect, with rare earth metals following a similar path. In a sense these commodities are indeed no longer commodities, but investments which increasingly take on the characteristics of an alternative asset class with a very different dynamic. After all, while most commodities are influenced by the counterbalance of supply and demand (among other things), in the case of copper this is singularly lacking, since one country is distorting this dynamic completely.
One could of course argue that a drought or other natural phenomenon has the same outcome – a dramatic effect on prices – but the net result of China’s actions is similar in many ways to the corner of silver by the Hunt Brothers in the 1970′s, or Chocfinger more recently. Distorting supply and demand is the same, whether overt or covert. China’s first onshore default, coupled with growing concerns over future growth triggered the sharp fall. Hardly a bellwether of broader markets I would suggest. In other words, the characteristics of the metal, like many other commodities has changed dramatically in the last few years, and perhaps for ever. No longer can it be considered a ‘free floating’ commodity and one which is subject to the supply and demand forces which apply in the price discovery model. And copper is not alone, there are others, all influenced and changed by the world events of the last ten years. It is not too fanciful to suggest that in future decades wars may be fought, and in some respects already are, over base commodities such as water, gas and oil.
So to the third question – where next for the price of copper and here we can turn to the daily chart. The first point to note is the break below the potential support in the 3.100 region has now been firmly breached, with two additional wide spread down candles adding further bearish momentum. All three candles are associated with ultra high volumes, suggesting little in the way of any stopping volume just yet. In today’s trading, the metal has finally found some support in the 2,9540 region, with the candle closing as a long legged doji, and suggesting that we may see a bounce higher for copper in the next few days. However, the longer term outlook remains firmly bearish for the time being, and for any recovery longer term, we will need to see a dramatic buying climax, and given the extent of the current selling, an extended phase of congestion prior to any bullish momentum returning for copper.