Copper Prices Set to Rise, Bernstein Predicts - BARRONS
BY Callum Keown
The key copper-to-gold price ratio’s extreme lows will be short-lived, with copper prices set to rise, Bernstein has forecast.
In uncertain times, investors have flocked to havens, such as gold, while global growth pressures hit copper prices.
As a result a lower copper-to-gold ratio can signify a lower appetite for risk assets.
Bernstein analysts said the key metrics around the gold copper trade had reached trough levels and expected the ratio to rise, driven by higher copper prices.
The firm expected investors, who have traded long gold and short copper, to cash in and support a higher copper price in the near term.
The long-term price trajectories have moved in the same direction but have diverged on several occasions, including after the global financial crisis, during the European Union debt crisis, and, more recently, as a result of the U.S.-China trade war.
Analysts at Bernstein said the fall in copper prices so far this year didn’t reflect the commodity’s fundamentals. “It is in fact a function of speculative traders capitalizing on the recent macro uncertainty with U.S. and China trade war tensions,” they wrote.
“The current Copper Gold pair trade will reverse, however, as it has done historically, and the extremes where we sit today are always short-lived—this will be supportive for copper prices in the near-term.” They added: “We expect to see the price ratio rise, driven by copper price rising rather than gold price falling.”
Miners and commodities traders, such as Glencore (ticker: GLEN.UK)—whose shares are down 13% in 2019—have struggled this year but would benefit from rising copper prices.
J.P. Morgan downgraded the Anglo-Swiss miner last month due to risks of a global recession and a trade war, and the fact that its balance sheet was exposed to copper prices.
The firm said the company had the highest earnings leverage to commodity prices of the major global miners, and that a 10% rise in prices would boost full-year earnings per share by 115%.