Is the Copper Price Meltdown a warning sign for the world?

Summary:

The Copper price started the month nudging $10,000 per tonne. But in the last three weeks, the price has lost almost 10% and is trading at a four-month low

The Copper price started the month nudging $10,000 per tonne. But in the last three weeks, the price has lost almost 10% and is trading at a four-month low. And considering Dr Copper is viewed as a barometer of economic health, this may be concerning.

This morning, the three-month Copper price on the London metal exchange has slipped below $9,000 for the first time since April. This brings the red metals decline to more than 16% from 2021 high, and as a result, Copper has broken down from a long-term uptrend. This follows a worrying slowdown in China, the worlds second-largest economy, and biggest user of raw materials. The surge in covid-19 cases in the nation is certainly a concern, and the latest economic data is equally troubling. Factory output was markedly lower in July than June, and retail sales growth has also slowed dramatically. This has helped do what Beijing has struggled with for months, dampening the previous blazing hot commodity prices. Crude oil and iron ore have also corrected sharply lower in recent weeks. And this could be a sign that the post-pandemic bump to risk assets may be faltering.

CAD Technicals Detiororate

The daily chart shows the copper price is destroying its previous supportive factors. A major trend line, at $9,450, from March 2020 gave way on Monday. This caused the selling to accelerate as trend followers liquidated and momentum-chasing systems initiated short positions. This should now see the Copper price extend lower to the 200-day moving average at $8,833.

This is a major level of support and vital to the immediate price prospects. This is evident in the fact the price has remained above this indicator for the past year. And therefore, should it fall, it’s likely more selling will follow. An extension lower could potentially target January’s $8,237 high, around 9% below the market.

The outlook for Copper is fragile unless it can reclaim the uptrend. And should that happen, the bearish outlook becomes invalid. However, there are no indications a bullish catalyst is on the horizon, and the downside certainly looks favourable at the moment.