Is the Red Metal Anticipating a Recession?


Copper Analysis and Chart

Article written by IG Technical Analyst Vincent Boy

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While world markets proceed to anticipate a “soft landing” and stay at their highest ranges, the worth of copper, thought of a related indicator of the well being of the world financial system, is correcting sharply and is at its lowest degree since November.

The purple metallic is utilized in many industries, corresponding to actual property, telecoms, and even more and more in actions associated to the power transition. In truth, aside from wind generators, which require a lot of copper, it takes 4 to eight instances extra copper to construct an electrical automobile than for a combustion automobile.

This suggests a vivid future for copper over the subsequent few many years, as demand is predicted to soar. Moreover, the vital deficit between provide and demand, which was already noticed earlier than 2020 and which has elevated sharply following the drop in funding throughout the Covid years particularly, ought to be very constructive for the worth in the long run.

However, it has fallen by greater than 15% since its excessive level at the starting of 2023, after having rebounded throughout the final quarter of final yr towards the backdrop of the reopening of the Chinese financial system. China accounts for greater than 50% of world copper demand.

Thus, though the long-term outlook could be very constructive, the dangers of a slowing world financial system, and even a recession and a a lot softer-than-expected financial restoration in China, ought to hold the copper worth below stress, however supply an attention-grabbing shopping for alternative for a longer-term horizon.

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Copper Daily Price Chart

The worth of copper is correcting by greater than 15% since the starting of the yr and after having reached an necessary goal on the lows noticed since January 4 and having held on the 2020/2022 indirect assist, it’s accelerating downwards.

The breach of the indirect confirms the bearish outlook on the worth of the purple metallic and it ought to attain its subsequent goal, situated on the assist vary, which initiated a rebound at the finish of final yr and is situated at $3.25/$3.30. The latter had additionally served as resistance on quite a few events in 2017.

Below the latter, we anticipate a fast return to the $3 mark. A worsening of the general financial state of affairs ought to assist this outlook.

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