The copper price has continued to tumble this week. We suspect this is due to financial factors rather than underlying fundamentals. The copper market’s high liquidity has made it vulnerable to negative investor sentiment towards commodities sparked by last year’s oil price collapse. Meanwhile, the recovery in gold prices has faltered slightly. Nevertheless, support should come from further uncertainty in Greece and an extended period of low bond yields.
The Federal Reserve’s decision this week to remain “patient” on raising interest rates until at least June was widely expected, but should provide some further near-term support to commodities. The Fed also sees the collapse in oil prices as a net positive for the economy via the boost to household spending power. This underlines our view that industrial metals demand and prices, which are closely linked to the economic cycle, should recover in 2015, amidst weak supply growth.
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