Is Copper A Bull or a Bear Market?

Tuesday, March 29, 2016

While many people look to precious metals to weigh the state of the economy, there are still those shrewd investors who’d rather look to the industrial metals.

According to Daryl Guppy at CNBC, “The health of the price of copper, shown here in cents per pound on the weekly chart, is a guide to the health of the world economy.”

If you’re looking to understand the world economy, you’re going to first have to understand the context of the current copper market. And since it’s rare to find someone who puts all of their eggs in the industrial metals basket, there’s a good chance that for many of you, that will take some time and consideration. Let’s look at the current copper market and see what we can find out:

Is Copper at a Bottom? The Evidence

If copper is in a bull market, then we can expect to find that it’s hit some sort of bottom either recently, or hit a bottom and stagnated ever since.

When Daryl Guppy looks at the numbers, he does indeed see a bottom. “the long-term downside target price for copper has been achieved,” he writes. But he doesn’t believe that this necessarily means there’s going to be a sustained upward trend, either. “Investors should watch for the future development of long-term consolidation chart patterns to develop. These may include a rally to near the 250 cents level followed by a retreat and then another rally that retests the resistance level. Any future rally has three major obstacles.” One of those obstacles, he says, is resistance at that $2.50 level.

Meanwhile, a story in the Salt Lake Tribune published yesterday saw that potential for a healthier world economy could drive up prices, noting: “Copper futures headed for the biggest gain in six sessions as economic indicators in the U.S. and China boosted demand prospects.” This optimistic belief about copper shows that there are indeed some signs towards a bull market.

It's possible for copper to be near a current “bottom” without being entirely bullish on the immediate future of copper, after all. One should note Guppy’s thoughts and watch how copper behaves in the coming months to see if the predictions are indeed accurate.

What About a Bear Market?

How do we know if copper is headed for a bear market instead? What are some indicators that might tell us that?

Mining.com asked if investors are indeed “ultra-bearish” of the metal, along with oil. They cite a quote from the UK’s Telegraph showing that any recent gains might not be poised to last in commodities. They see investors potentially dumping out, lowering the prices some 20-25% in the near future.

Where do you stand on copper? It will depend on who you believe when it comes to the “bottom.” Are we at a near bottom, and does the world economy mean there will be more demand for copper…or is copper tied to most commodities where many people see an ultra bear market? The truth about copper is that only time will tell.

Darren Capriotti

Darren Capriotti has been a market analyst for the past decade and is an expert in precious metals. He prides himself on his ability to analyze the market and offer true value to investors with questions about gold, silver, and other precious metals. Highly educated, incredibly passionate, and more accurate than most, Darren offers a true, unbiased look into what investors can expect in the precious metals market. You can reach Darren at dcapriotti@gold-eagle.com.