The Red Hot Copper Trade
The home building and commercial construction sectors have a clear dependence on ‘Dr. Copper,’ making its chart an investors’ go-to gauge of world trade and gross domestic product (GDP) growth. Dr. Copper has stormed back from $2 to $2.60 per pound in three months, but analysts insist it’s still too early to take gains. The metal might be bucking a ten-year downtrend to hit new all-time highs.
If you believe electric cars are the future, so is copper. If you believe 5G networks and renewable power generation is the future, so is copper. The pandemic has knocked back legacy technologies and accelerated stimulus packages for digitalization and eco-solutions. This could “herald a boom in demand” for copper, according to the Eurasia Group.
It ain’t a quick trade to flip, though, a get in-get out play. It’s a long-term diversification into commodities. The red metal is a hard asset, so it will shield you from inflation over time, and move based on expectations of supply and demand. It’s mined in Chile and the United States, and exported very heavily to China. Respective currency exchange rates also matter.
Bank of America has a price target of $6,250 per ton of copper, supported with projections of “more purchases of raw materials” on a global front post-corona. Eurasia Group is also bullish, claiming that while 1% of copper demand comes from electric cars now, it will be 10% in ten years (as we said, a long-term investment!). “Welcome to the age of copper!”