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Copper near 10-year high is too hot; look to gold for stable value - Bloomberg Intelligence
(Kitco News) - The copper market has been grabbing a lot of investor attention since the start of the year as prices have surged higher, culminating in this week's 10-year high.
However, one analyst is warning investors that the market is looking a little precarious and might want to look at stability in the gold market.
Mike McGlone, senior commodity analyst at Bloomberg Intelligence, noted that copper prices are benefitting from growing expectations that the U.S. economy will see a faster-than-expected recovery from the COVID-19 pandemic.
The base metal is experiencing a significant fundamental supply/demand imbalance as the global economy faces a severe supply crunch and growing demand. Not only is copper benefiting from an economy that is getting back on track, but the market is also seeing renewed demand as government worldwide embrace the development of clean renewable energy, McGlone said.
"The metals should continue to outperform the consumer price index in a world of rapidly advancing technology and cleaner energy. Fossil fuels are being replaced by tech, which means demand for metals," said McGlone.
March high grade copper futures are currently trading above $4 a pound, near their highest level in 10 years. However, McGlone said that the rally might be a little overdone in the near-term, and it might be time to look at gold again as the precious metal is finding strong support after falling to a seven-month low last week.
"Copper at the top of our 2021 performance scorecard vs. gold at the bottom elevate the risk of some reversion, in our view. Just a little normalization of the stock-market rally is a prime potential driver for gold to recover from good support around $1,760," he said in a report Wednesday. "Decarbonization and electrification mean replacing fossil fuels with technology and demand for metals. Gold and silver add the diversification benefits of strong underpinnings from increasing debt-to-GDP and quantitative easing levels."
McGlone said that the critical element driving gold prices is bond yields. Yields on U.S. 10-year notes are currently trading at their highest level in a year above 1.4%. McGlone said that 1.5% represents a critical resistance level and will be a good test for the gold market.
"We see the gold bull market as more enduring on the back of unprecedented rising global debt-to-GDP and quantitative easing than we do optimism for a demand-driven, post-virus recovery that's a primary support for copper," he said.
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