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Copper treads water awaiting developments, other metals follow

03/05/06

The metals put in a mixed day, largely sitting on the fence as if waiting to see which way prices break. Although the trends are still overall heading higher and the bulls have been dominant since last July, the market seems to be showing some nervousness. Is it worried by the threat of higher exchange margins, or the fact that the ICSG forecasts a supply surplus of 240,000 mt this year, or perhaps by the realisation that demand is being hit by substitution? In which case it maybe wondering how much longer can it realistically justify holding at these near-record levels, especially if there is the potential that China is looking to touch the brakes of the economy.

The problem, however, is that although the downside factors are starting to pile up, the one that breaks the camels back has not turned up yet and in the meantime the market remains a dangerous place for bears and bulls alike; the only differences being that the bulls have the track record of winning, are confident and probably have more cash to see through their investment targets. As such, until the market makes it very clear that it is heading south it is best advised to sit on the sidelines, as the top of the market might still be a long way off. Having not experienced a market like this before, perhaps the Gold spike in the 1980’s will help us understand how the market might unravel. Back then the last $250/oz was achieved in 8 days, but prices retrace 90% of that move in 5 days. So even if you miss the first move lower, in say copper, as long as you do not procrastinate too long when the balloon bursts there should still be opportunities for those who are quick enough to react.

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