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Is copper the new golden child of the metals group?

Commentaries & Views

Gold futures opened at $1901.60 this morning; it is currently down $3.10 and trading at $1895.80. Unquestionably gold continues to remain the primary precious metal that is a hedge against inflation. Gold has the same buying power as it has had for the last 100 years.

To elaborate, if you had a $20 gold coin or a $20 bill (redeemable in gold) in 1910, you could use either the gold coin or $20 bill to pay for a room at the Plaza Hotel in New York, by a new suit, and have a steak dinner. Today with the same $20 bill, you would be hard-pressed to buy just the steak dinner. However, a one-ounce gold coin is worth approximately $1900. With $1900, you could still buy a suit, stay at the Plaza for one night and have a steak dinner. In other words, the buying power of gold has not changed for the last hundred years; however, the dollar has dramatically devalued as inflation has ravaged the buying power of our fiat currency.

Because of that stability in buying power, gold will never lose its luster or allure as a safe-haven asset. It is for that reason that gold will always be a cornerstone asset in the safe-haven group.

However, as a purely speculative trade or investment you might want to look into copper futures. Copper has more than doubled in price, from $2.00 a pound in the middle of March 2020 and traded to a new record high on May 10 of $4.87 per pound, resulting in a 143.5% increase in value.

More so, several analysts are predicting much higher pricing in copper this year and the first quarter of 2022. The commodity strategists at Bank of America forecast copper prices to run as high as $5.87 per pound by the end of the year. Recently Michael Widmer, Bank of America commodity strategist, said that inventories measured in tons are now at levels seen 15 years ago. He predicts that copper could spike to $13,000 per metric ton, which is roughly $5.89 per pound. He is also predicting that copper could hit $20,000 per metric ton by 2025. That would take copper pricing to just over $9 per pound.

“The world risks running out of copper” amid widening supply and demand deficits, according to Bank of America, and prices could hit $20,000 per metric ton by 2025.

“If our expectation of increased supply in secondary material, a non-transparent market, did not materialize, inventories could deplete within the next three years, giving rise to even more violent price swings that could take the red metal above $20,000/t ($9.07/lb).”

David Neuhauser, managing director of U.S. hedge fund Livermore Partners, said that “I think copper is the new oil and I think copper, for the next five to 10 years, is going to look tremendous with the potential for $20,000 per metric ton.”

While copper will never replace the safe-haven benefits of gold, and as such, gold should remain an essential and integral part of a diversified portfolio. At the same time, copper could be one of the more lucrative speculative investments over the next three years.

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Wishing you as always, good trading,

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.