Copper price (XCUUSD) is having a time of its life. The price is up by more than 0.7% at 06:35 GMT, continuing the tremendous rally that was started in March, when the price fell to a low of $1.9642. Today, the price of copper is trading at $2.7296, which is the highest it has been since January 23rd. So, why is the price rising?
Copper price rises as manufacturing sector rebounds
To be fair, Copper is not the only metal rebounding in recent past. Other base metals like aluminium, palladium, and zinc have been in an upward trend recently.
For starters, copper is an important metal in the world that makes a lot of things happen. The light in your home works because of copper. The same is true with your computers and all other electronic items. The metal is well-known not only for its conduction qualities but because of its malleability and ductility. This makes it the best metal in the electric industry.
As a result, Dr. Copper is often known as the barometer of the world economy. In most cases, it tends to do well when the world economy is growing or improving. And data released today paint a world economy that is doing well.
This means that the demand for the metal is possibly improving as these countries reopen. Another factor is that most governments have announced stimulus packages worth trillions of dollars. Most of these funds will go towards infrastructure. Others will go towards high-tech manufacturing like 5G and electric vehicles. All this will lead to more demand for copper and boost its price.
Chile copper production falls
There are two sides for the price of any asset; demand and supply. We have looked at the demand side above. Now, copper price is being supported by the supply side also. According to Chile’s mining ministry, copper production declined by 13% in May after falling by another 5.9% in the previous month. The country’s manufacturing production also declined by more than 13.3%.
These numbers paint an industry that is seeing sluggish supply at a time when demand is rising. For starters, Chile is the world’s biggest source of copper. And recently, the country has seen rising coronavirus cases, which means that low supply is likely to continue for a longer period.
Copper price technical analysis
On the daily chart below, we see that copper price is above the 50-day and 100-day exponential moving averages. Also, the RSI has been in an upward trend, and is now above the overbought level of 70. Most importantly, the price is above the ascending trendline, which connects the lowest levels in March, April, and May.
Therefore, copper price is likely to continue rising as bulls attempt to test the important resistance level at $2.80. On the flip side, a move below the support level at $2.5275 will invalidate this thesis. This price is at the intersection of the ascending trendline and the 61.8% retracement level.