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Copper edges lower as market consolidates

25/04/06

The base metals had a quiet day on Monday as prices consolidated after the gyrations on last week. Although the funds seem widely to be blamed for the movements of late, it looks like short-covering has been an important factor in the latest price acceleration. This would help explain the volatility and the aggressiveness of Friday’s rebound. Indeed it is hard to imagine the funds would be buying into such a spike. However, while short-covering continues copper may see prices pushed considerably higher, but once the covering finishes then there may well be little to support the price, especially if some of the funds are still selling into the strength. Judging by the performance of silver and gold of late it looks as though the funds are indeed taking profits, this is likely to be the case in copper as well.

The latest COT data showed that both the funds and the commercial traders were net short, while the unreported traders (the smaller specs) were net long. The other interesting point about the COT data was that the opinion amongst the funds was split as it was within the commercial camp and with relatively large gross fund long and fund short positions standing opposite each other, there is plenty of room either for more short-covering, or should the market turn south, for further liquidation selling. In addition, increased volatility may also lead to some fund to withdraw from the this sector as their systems detect a disorderly market.

Outside the base metals, oil, gasoline and the precious metals put in a down day, so unless upward momentum is restored the market will continue to be vulnerable to fund liquidation selling. Maybe the market can only be driven to new highs by another round of short-covering which may mean prices will have to push lower first.

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