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Why Copper Prices will Rise

Forecasting Copper's Future

By Marcelina Hardy
Thursday, August 8th, 2013

Copper goes down, and then copper goes up. Will it continues to rise, or will it turn around and go back down again?

Investors are scratching their heads as they analyze what is going on with copper. It’s all up in the air right now, as everyone waits to see what the U.S. will do.

copper barsOn Monday of this week, copper prices declined to $6,975 a tonne from $7,005 a tonne last Friday. But today, it rose to $7,157, the highest it’s been in two months. In June, it rose to $7,180, but of course, it also declined steadily since that time.

Ross Strachan from Capital Economics told Reuters:

“The data out of China has provided some reassurance that demand is not dropping off a cliff, but there are still some significant concerns about the Chinese economy and the knock-on effect for metals demand.”

Investors are concerned about the future of copper because of the possible reduction in bond purchases by the Federal Reserve. This anticipated stimulus reduction could lower the demand for base metals.

Some analysts don’t believe the copper slump will last long. The demand for copper may be revving up for a comeback soon.

China increased its copper imports by 8.1 percent in July, 410,680 tonnes more than the 379,951 it received in June. It's likely China will continue to import such large quantities, and with a lower supply, demand should be able to start meeting it.

From Reuters:

"The data supports our positive view that the period of destocking in China is over and we forecast an improvement in metals demand and also a stabilisation of growth in China over the coming months," said Eugen Weinberg, analyst at Commerzbank.

The U.S. dollar has weakened recently, which supports the gains in copper that have occurred. It was the lowest since June, which makes sense since that was the last time copper hit a high. When the dollar declines, commodities are cheaper, making raw materials look a lot better to investors.

But the United States economy has been improving, slowly but surely. Though this would be a good sign for copper, right now it means the Fed may reduce stimulus soon – something that will ultimately weaken copper demand. But luckily there are other factors that may pull prices out of the trenches.

The world is watching for the economic data set to be released by China Friday. It should include information on inflation, industrial production, and retail sales. It will be interesting to see if these factors fall in line with the recent surge in copper prices.

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Many people are awaiting the weekly report on initial jobless claims from the United States later today. It should give some indication of what direction the Federal Reserve’s monetary policy will take, a factor that will play into the future of copper. If the Fed hints at an upcoming reduction in bond purchases, copper prices might decline again. But if not, copper may get a boost.

It’s no surprise that copper is at a point of uncertainty. It’s been declining for almost two months, with no real sign of coming back except for today. If you’re looking to get into copper, this is probably the time to do it because even though prices rose slightly, they haven’t risen as much as they soon could.

If you’re in copper already, hold still. It’s obvious this is not the time to do anything with it, and you might not get the results you want anytime soon.

Let’s see what the reports tell us Friday. Analysts may have a whole different view of copper’s future, which will help you with your portfolio. If copper won’t be seeing gains for a while, consider silver, which has been showing steady climbs that experts believe will continue.

Gold is also a strong metal that comes through economic highs and lows. But before jumping into anything, just wait… Soon, you’ll have the word that will bring copper expectations more into focus.

 

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