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The Volatility of the Copper Markets Combined with the 'Trump' Effect

May 23, 2017

Much like other commodities, traders have always devoted a certain level of attention towards copper. There are two key reasons for this observation. First, this red metal is highly indicative of industrial demand and therefore, the health of domestic economies. Secondly, political policy shifts and fiscal plans can have a knock-on effect in regards to its pricing. We have witnessed a great deal of volatility during the past few months and while the medium-term outlook remains positive, many are wondering if a support level will soon be reached. Let us take a look at the root causes of this volatility as well as what to expect in the coming months.

Physical Supply

We first have to address the fact that recent disputes at large mines such as those located in Chile and Indonesia has continued to weigh heavy on aggregate output. According to Ric Spooner at CMC Markets, there has been a disruption to supply in the world's three largest mines. The simple rules of supply and demand dictate that this will naturally cause the value of the metal to rise from a short-term point of view. Some are predicting that prices of three dollars a pound ($6,600 dollars a tonne) are not out of the question.

Naturally, these symptoms should all bode well for the medium-term price of copper. The potential problem is that politics and economics may once again play important roles. This is particularly the case when we take into account what is now being referred to as the "Trump Effect". Why is this consideration important and how could his fiscal policies serve to offset a bullish copper run?

Trump Scaling Back

Since 20th January, Donald Trump has been plagued with internal issues surrounding his campaign. These have distracted his administration from following through (or at least beginning to follow through) on many of his electoral promises. A sizeable portion of his popularity arose from pledges to boost domestic infrastructure spending. This now appears to have come to a halt; at least from a short-term point of view. The fact of the matter is that political infighting has all but frozen many projects which should have already begun producing results. It is unfortunate that this trend does not appear to have a proverbial light at the end of the horizon.

The end result is that many commodity experts have placed doubt into the efficacy and even the reality of the fiscal stimulus packages proposed by the Trump administration. This is critical, for it is estimated that nearly one-third of the demand for this metal is associated with the construction and electrical sectors. Should these fall into the doldrums, prices could soon follow.

The Chinese Connection

Still, the news for copper is certainly not all doom and gloom. We are all aware that economists have been scaling back their medium-growth predictions for China. While forecasts are now hovering around 6.5 per cent, the fact of the matter is that this is still quite impressive for the region. This is one reason why copper traders are not yet ready to side with the bears. As Chinese consumption represents nearly 50 per cent of global demand, even a slight slowdown should not have an overtly debilitating effect upon the price of copper.

Will Support Be Reached?

The verdict is still out in regards to whether or not copper will experience a fundamentally strong level of support in the coming weeks. In the same respect, we will be keeping a keen eye on the price of copper in the near future.


Small amounts of natural gold were found in Spanish caves used by the Paleolithic Man about 40,000 B.C.
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