Copper’s Epic Volume and Its Implications for Stocks and Gold

Copper is the new oil! Maybe it is… But does it mean that “up” is the only true direction?

…And yes, it has implications for the precious metals market.

Copper just moved to its all-time high, and it just rallied on the highest volume EVER. To clarity: I mean the copper futures and the volume levels that accompanied daily upswings. If we include daily downswings, then yesterday’s volume was second biggest ever. This is still profound and given that copper is one of the most widely used commodities, it’s quite clear that the implications of such a remarkable event extend beyond the copper market itself.

But first… Is copper really the new oil? The underlying question is different – is the virtual, electric, and AI-based world becoming more important than the real world? Copper is the second-best metal conductor (after silver), but since it’s significantly cheaper than silver, it’s used much more widely. Oil is used almost everywhere in the real world. Oil is used for the transportation of regular goods, while copper is used for transportation of electronic/virtual goods.

Consequently, expecting a boom for everything that’s related to electronics translates into an expectation toward higher copper prices. And since markets are forward-looking, expecting higher prices in the future makes investors buy a given asset right away. After all, why wait with the purchase if one thinks that the prices are going to go up?

But is expecting the boom really justified? I already commented on those multiple times before – I simply didn’t write about it in connection with the copper market.

Tech stocks soared above their previous highs, then they invalidated the breakout, and now they are after a sharp correction that’s very similar to what we saw during the previous decline from the current price range.

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Ok, this time – unlike in 2021 and 2022 – Nasdaq moved back to its previous high after the invalidation, but other than that, the situations are alike.

Interestingly, the first and the second tops in 2021 and 2022 were accompanied by huge volume readings and we saw the same thing recently. Tech stocks topped on huge volume in March, and we saw very big volume also yesterday when they approached their previous highs.

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Meanwhile, the momentum in bitcoin, the new dollar alternative, is gone. After trying – AND FAILING – to break above its early 2021 highs for the second time (after the failed late-2021 attempt).

Bitcoin halving was supposed to take it much higher, but since everyone thought that this would be the case, they had already bought in advance and – of course – the rally couldn’t happen as everyone that were really interested were already in the market and the latter needs fresh buying power to keep climbing.

Yesterday’s extreme volume in copper suggests that the tide is shifting or that it has already shifted. To be clear, it’s both – depending on which market you take into account. Bitcoin most likely topped, tech stocks are likely forming a double-top here, and world stocks are topping in their own ways.

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Of course, some stock markets (like the Polish stock market, for example) are stronger and are moving to new highs, while other markets lag, but overall, the topping pattern is clear.

All right, having said all that, let’s take a look at what copper just did.

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It moved to the previous highs and reversed – it all happened at extreme volume.

I marked the previous cases with such a significant volume with vertical, dashed lines, so that you can see what happened next in case of copper and stocks (main part of the chart), the USD Index middle part of the chart), and the precious metals sector (lower part of the chart – mining stocks are marked with brown).

There is no clear directional implication of those huge-volume sessions except for the fact that it brought changes to the preceding trends.

In 2007, that was a local top in copper, in stocks and in the miners, but that was after a rally in all of them. In early 2018, the implication was alike – the rally came to an end in case of the above-mentioned markets while the USD Index bottomed. There were also cases when the PMs bottomed, but that was after they had already been declining for some time, so the huge volume marked a reversal.

Right now, it’s clear that copper, stocks, and the precious metals market are after a rally, while the USD index is after a short-term decline. So, what are the implications? Yes, this suggests that a reversal is due, and this time, a reversal implies a top in all those markets except for the USD Index.

A top in copper fits the scenario in which all-things-electronic-and-AI got WAY ahead of themselves, in a dot-com-2.0 fashion, which is what other markets point to.

Besides, the huge daily volume in copper is not the only thing that’s pointing to lower prices.

It’s also the shape of the most recent price moves. The last few years look very similar to the 2006-2008 period, right before the huge slide in copper and in the precious metals sector – especially in silver and mining stocks.

Interestingly, the broad topping pattern of 2006, 2007, and 2008 started in the first half of May and that’s also when the final top was formed – in first half of May 2008.

The current pattern started on May 10, 2021, and it was May 14, 2024, yesterday…

Coincidence? That may be the case, but let’s keep in mind that “this time it’s different” are very expensive words for any investor.

On a side note, the 2022 slide accelerated in May as well.

The broad price pattern, the very specific time of the year, the very strong resistance provided by the previous highs, the extreme volume reading, and even the situation in other markets point to declines in copper (and in the precious metals market) being just around the corner, and yet… “This time it’s different” seems to be the popular phrase once again.

Why? Because of the electronic revolution? Will virtual life really become more important than the regular life – maybe at some point, but we’re not there yet. Where we are, however, is where they hype is reaching extreme levels – and in some cases (cryptos) those limits were already reached.

Or is it because of the increased demand from the Chinese investors?

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The Chinese stock market is now approaching its strong resistance line based on the previous important lows. It already served as support twice in 2022 and as resistance in late 2023. Will it hold this time? That’s unlikely given how resistance levels work and given that RSI above 50 generated tops and declines.

And with declining stock prices, will the global demand really increase? That’s doubtful.

It’s true that the Chinese investors don’t have that many alternatives when it comes to investing and that gold might look appealing if the Chinese stocks are declining BUT gold is not the only alternative. Keeping cash is also a viable option.

What happened when the Chinese stocks fell in 2008? Or 2015? Or 2018? Copper and precious metals declined. Gold did not automatically soar because of declining stock prices, so again… Is “this time different”? And how costly can repeating that without questioning it and without considering historical analogies really be in the following months?

Sure, none of the above tells you if copper, gold, or mining stocks would slide today or tomorrow, but it’s a clear indication of what big trends are just around the corner.

It seems that the major tide is here in the case of currencies (USD/YEN!), stocks (tech stocks, broad market), bitcoin, and precious metals. It also seems that junior mining stocks provide an excellent opportunity right now, and I invite you to subscribe and read all key details in my premium Gold Trading Alert (along with trading details). Subscribe today.

Thank you.

Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief