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Ningbo Jintian Copper (Group) Co., Ltd.
Ningbo Jintian Copper (Group) Co., Ltd.

Chart Of The Day: Inflation Hedge Copper Prepares To Shatter Its All-Time Record

Even before Russia's invasion of Ukraine on Feb. 24, stocks were already facing their first headwind, as inflation began accelerating. That risk continues as inflation recently spiked to 40-year highs in the wake of a global pandemic, government spending and years of endless money-printing along with interest rates near zero.

Over the same period, Treasuries suffered their worst quarterly selloff since 1973. As well, the 10-year note saw its seventh worst quarter since the US Civil War—which occurred despite the asset's safe haven status. That particular selloff was driven by the outlook for higher interest rates going forward, which would eat into current yields for existing long-dated maturities.

Moreover, the Treasury yield curve has been inverted for the past three recessions, causing some market participants to expect a recession could be on the way.

But copper, the metal frequently used for automotive wiring and in homebuilding, as well as a component in a vast selection of consumer electronics products, also acts as a recession hedge. The price of the red metal tends to rise ahead of consumer product prices—not surprising since it's a key component of many of those products, thereby helping drive up their price.

From a technical perspective, the chart of the copper futures contract is on a path to much higher levels, even as the commodity approaches its all-time high, posted Mar. 7, of $5.02 per pound, overtaking the February 2011 high.

Copper Monthly

The non-ferrous metal completed a full-year Symmetrical Triangle between March 2021 and 2022.

Based on the pattern's height, copper's implied target is an 89-cent boost from its breakout point, aiming at $5.53, another 19% ascent, which would agree with the top of the rising channel in place since 2006.

Note, the 50-month Moving Average crossed above the 200-month Moving Average in the run-up to the Symmetrical Triangle. The last time a monthly Golden Cross occurred was in 2005, before the price surged over 300%.

Trading Strategies

Conservative traders should wait for the price to retest the Symmetrical Triangle's top.

Moderate traders would be happy with a pullback for a closer entry.

Aggressive traders could enter a long position according to their trading style.

Trade Sample

  • Entry: $4.70

  • Stop-Loss: $4.65

  • Risk: $0.05

  • Target: $5.00

  • Reward: $0.3

  • Risk-Reward Ratio: 1:6