- Summary:
- In a note to investors, analysts at Goldman Sachs said that they are extremly bullish on copper price. But there are strong risks to thi thesis
Copper price has soared by more than 22% this year and by almost 80% from its year-to-date low of 1.9730. This makes 2020 the best year for the metal since 2017. And the trend is not about to stop, according to analysts at Goldman Sachs.
According to CNBC analysts at Goldman believe that copper’s rally was just getting started. They also raised their target for the metal to $9,500 per tonne from the previous $7,500. They said:
“The bull market for copper is now fully underway with prices up 50% from the 2020 lows, reaching their highest level since 2017. This current price strength is not an irrational aberration, rather we view it as the first leg of a structural bull market in copper.”
Copper price has been helped by several factors during the pandemic. First, supply has fallen slightly because of the pandemic. At the same time, demand from China has soared as the country’s recovery gathers pace.
Third, the recent discovery of a Covid vaccine has raised chances of a global recovery in 2021. Fourth, the ongoing conflict between China and Australia has led many to remain optimistic about the price of copper.
Finally, the US dollar has crashed by more than 11% from its peak in 2020. And analysts believe that the decline will accelerate in the coming year. Therefore, since copper is usually priced in dollars, the two usually have an inverse relationship.
However, while copper price could rally in 2021, there are some risks. For one, according to HSBC analysts, there is a possibility that the dollar will actually strengthen in 2021 as a risk-off sentiment emerges. Second, as you will see below, copper has become extremely overbought both on the weekly and monthly chart. Finally, after the strong rally in 2020, there is a possibility that traders will start to take profit.
Copper price technical outlook
Turning to the daily chart, we see that copper price has been on a strong upward trend. It is significantly above the 50-day and 100-day moving average. At the same time, the Relative Strength Index has soared to the highest level since July. Indeed, the same is true when you look at the weekly chart. Therefore, in the near term, I suspect that there will be a pullback in copper prices.
Copper technical chart
