Strangely enough, the main root behind the massive bullish moves in Copper and Gold is a byproduct of the same event. The massive recession and economic contraction, which began in March 2020, has led to extreme actions by the Federal Reserve and other central banks around the world. These actions continue to this day and are one of the main reasons we see the end of the recession as countries around the world begin to reopen as their economies rebuild.
It is inflationary fears and massive fiscal stimulus creating huge national debt that are a major component of the weak dollar and extremely high gold prices, which have now returned to over $ 1,900 an ounce.
In the case of copper, the surge in prices is a direct result of stimulus programs in the United States and China as well as other major Western economies that are rebuilding their economies through major infrastructure projects and use in the making.
Although China is the world’s largest producer of copper, it does not produce enough in-house to meet its needs. According to the United States International Trade Commission, “China is the world’s largest producer of copper, although it exploits a limited supply of copper ores. This is because China imports significant amounts of copper ores and scrap / scrap for smelting and refining into pure forms of copper for sale in domestic and international markets.
As countries around the world moved to create cleaner energy production, using copper in solar and wind farms requires massive amounts of copper to integrate systems. In the United States, part of the current administration’s new infrastructure proposal will require increased amounts of copper to meet their goal of producing cleaner energy.
At the start of 2021, copper was trading at around $ 3.50 a pound. By early April, copper had hit $ 3.98 per pound and closed on the last trading day of May at $ 4.67 per pound. This means that copper has gained around $ 0.69 in the last two trading months, a gain of 17.34%. For a futures trader, this represents a significant gain as the size of the copper contract is 25,000 pounds. Traders who have been long on copper in the past two months have been able to glean $ 17,250 per contract, with the current margin requirement of $ 6,000 per contract, which is a substantial profit.
Even more impressive is the fact that commodities strategists at Bank of America predicted copper prices to hit $ 5.87 a pound. CIBC commodity analysts are also forecasting huge price hikes, predicting copper to hit $ 5.25 a pound by the end of this year or in the first quarter of next year.
Gold prices have also seen an exceptional performance over the past two months, gaining around $ 197 per ounce. This represents a net gain for the last two months of 11.55%. It also represents a huge payoff for futures traders who have been wise enough to be long on gold for the past couple of months. Since the contract size of a Comex futures contract is 100 ounces, traders who were long in the past two months would have made a profit of $ 19,700 per contract.
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Wishing you, as always, good trading and good health,
Gary S. Wagner