The copper futures (HGK25) market hit a record high in late March of $5.2770 a pound basis nearby futures (HGJ25) and then saw a steep price drop that pushed the red industrial metal to a nearly three-month low of $4.03 in early April. Prices then rebounded to reclaim almost half of the losses seen in late March through early April. The recent volatile price action in copper futures provides valuable clues that can be applied to other commodity markets and even to the overall global economic outlook.

Copper gets its marketplace nickname, Dr. Copper, by being a critical building and construction component worldwide as well as a forecaster of global economic trends. Veteran market watchers keep a closer eye on copper from a macroeconomic perspective. As go copper prices, so then are likely to go global stock index prices. 

Copper Prices at an Inflection Point

Copper futures prices at mid-week are pausing after the recent higher volatility. It seems that the copper market is now at an important inflection point. Copper’s next bigger price moves are likely to have implications for many other raw commodity futures markets, as well as global stock and financial markets.

2 Scenarios Laid Out 

If May copper futures can climb back above chart resistance at the $5.00-per-pound level, it would better suggest that the red metal has put in a major price bottom and could even restart a price uptrend. That would also then suggest that major U.S. and world stock indexes have also put in major price bottoms and can begin to trend up.

This scenario would be bearish for gold (GCM25) and silver (SIK25) from a safe-haven demand perspective. However, it would be bullish for raw commodity markets as consumer and commercial demand would likely improve as global stock and financial markets would be healthier. My bias is that the better trader risk appetite in the general marketplace in such a scenario would be more bearish for gold and silver than it would be bullish for the metals from a demand perspective.

Conversely, if May copper futures prices drop below the April low of $4.03 a pound, it would be a very ominous clue that the global economy is sinking into a recession that could last at least a few months, if not longer. Stock markets would be like to sell off and risk aversion would rise, which would be bullish for gold and silver and could drive the two precious metals’ prices sharply higher from already historically elevated levels. However, other raw commodity futures markets, led by crude oil (CLK25), would likely suffer and see their prices weaken on worries about a global economic recession weakening consumer and commercial demand. 

How I See It

My bias is that the early April low in May copper futures prices will hold, to suggest the worst of the global economic and trade worries in the marketplace have passed. This would be bullish for commodity and stock markets but bearish for safe-haven gold and silver. 

But if I’m wrong in my assumption and copper prices do fall to a new for-the-move low, then it would be “Katie, bar the door” bearish for a whole bunch of other markets. 

In the coming few weeks, let’s see what Dr. Copper prescribes for markets. Tell me what you think. Email me at jim@jimwyckoff.com.