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Keeping Copper In Focus

Keeping Copper In Focus_800

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We just wrote about copper four weeks ago, but you might have missed it. And since the mainstream financial media is starting to catch on, now would seem a good time to write about it again.

Let's start with that article from last month. If you missed it and want to get up-to-speed on the story, you might start by clicking this link:

Over the past four weeks, copper prices have risen and fallen backward, much like COMEX gold and silver. As the Fed continues to raise interest rates in the first few months of this year, the key driver of the copper price may actually be the U.S. dollar index. In short, when the dollar index rises, copper falls and vice versa.

Keeping Copper In Focus_1

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However, as 2023 progresses, we are likely to see fundamental factors such as physical supply and demand have a greater impact on price. And what are some of those fundamental factors?

  • Ever-increasing demand as a battery metal
  • Chinese demand returning after three years of "Zero Covid" lockdowns
  • Rapidly falling global stockpiles

Oooohh ... that last point is a big one. Taken that post last month, have another look at this chart of global physical copper stockpiles and be sure to note the ongoing depletion. That's a drop of about 80% over the past five years!

Keeping Copper In Focus_2

And the mainstream financial media is beginning to take notice:

OK, so now let's check the chart. What do we see below? Though off its recent highs, copper is back into its consolidation or "flag" area that has been the predominant price range since 2020:

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You should be certain to note that the last time copper broke out and moved higher out of a long-term price range, it rallied about 70% on the back of a weaker dollar and renewed QE. If you believe as I do that another period of a weaker dollar and renewed QE is pending for later this year and next, what's to stop copper from rallying in the same manner as before? If you add 70% to the breakout level of $4.80, you get a price target of $8.20 ... and that doesn't even consider all of that global physical stockpile depletion. As such, could the next move in copper lead to double digit prices? You bet it could.

So now let's draw this back to the precious metals and, in particular, silver. As you know, silver is also a very important industrial metal and conductor of energy in the so-called "green revolution". Also, like copper, physical silver is also being depleted globally:

Keeping Copper In Focus_5

And if you think the entire 800,000 ounces listed is freely available for delivery, think again. See this from Ronan Manly at BullionStar:

But even outside of that, just check the long-term correlation between copper and silver. If you think there's a chance that the copper price does break out later this year, then you should probably be expecting higher silver prices too. In fact, you might say that silver is already rather deeply undervalued versus copper!

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So we'll keep a close eye on copper in the months to come. If it's about to double in price from here, it's not a bad investment on its own! However, what a soaring copper price might do to the silver price is something we should all keep in mind as 2023 progresses.

The more you know, the more wisely you invest.

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About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.


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