Copper and gold prices surge as investors wager on limited supply

In a surprising turn of events, the prices of metals like copper and gold have skyrocketed to record highs due to a surge in speculation by futures market traders. Copper, in particular, has seen a 30 percent surge since early March, breaking through $11,000 per tonne this week, reaching an all-time high. This rally has also boosted the prices of other industrial metals such as aluminum and zinc.

Investor buying has also propelled gold to new heights, hitting $2,450 per troy ounce, while silver has exceeded $30 per ounce for the first time in a decade. The head of base and precious metals strategy at JPMorgan, Greg Shearer, noted significant investment inflows into metals from various types of traders and funds.

Analysts attribute the price moves to a surge in open interest, which is the number of open futures positions and the market’s depth. Open interest across base and precious metals markets reached record highs last week, according to a JPMorgan analysis.

The influx of money into metals has come from momentum-driven algorithmic traders, macro hedge funds increasing their allocation to real assets, and specialized commodities hedge funds. Copper, crucial for the decarbonization process, has led the price surge, with a “very hard to fix supply picture” underpinning its rally.

Investors are seeking to diversify their returns beyond major technology stocks by turning to metals, with inflows into broad-basket commodities funds surging in recent months. Despite weaker-than-expected demand in China, there are signs that global manufacturing is rebounding, sparking interest in silver due to its extensive use in solar panels.

Overall, the surge in speculation by futures market traders has created a potent mix of factors driving the prices of metals to record highs, with commodities trading starting to behave more like equities as speculative investors play a growing role in the market.