Copper price recovery fades as yield curve inversion intensifies

Copper price has been in a bullish trend in the past few months as investors bet on the comeback of the Chinese economy. It was trading at $4.14, which was slightly below the year-to-date high of $4.35. It has jumped by more than 32% from the lowest point in 2022.

Betting on China’s comeback

The main reason why copper has jumped in 2023 is the view that demand from China will continue in the coming months. Recent data has shown that the Chinese economy is recovering albeit at a slower pace than what analysts were expecting. Beijing hopes to achieve a 5% GDP growth while the IMF expects that the economy will grow by 5.2%. Copper is highly-sensitive to China, which is its biggest buyer. 

However, the biggest risk for copper price is the Federal Reserve and the rising risk of a major global recession. Fed minutes published on Wednesday showed that most FOMC committee members believe that more rate hikes are necessary. 

At the same time, the closely-watched yield curve has inverted significantly in the past few months. It has inverted to the lowest level since the 1980s. In most cases, an inverted yield curve has led to a major recession in the US and around the world.

Copper is highly sensitive to these issues because it is often seen as a barometer for the world economy. In most periods, copper tends to underperform the market in periods of recession as we saw in 2022.

Still, there are several catalysts that could push copper prices higher. First, there is a likelihood that Beijing will announce measures to boost spending in a bid to boost the GDP growth. Second, there are some inventory challenges. Recent data shows that inventories has crashed to the lowest point in months.

Further, there is a possibility that the ongoing recession talk is a mirage. In fact, we have recently seen strong economic data, including on employment and retail sales. This means that consumers are doing well, which will likely offset future weaknesses.

Copper price forecast

Copper chart by TradingView

On the daily chart, we see that copper prices have been in a strong bullish trend in the past few days. It has formed an ascending channel that is shown in red. The price is currently at the lower side of this channel. It remains above the 25-day and 50-day moving averages and the 50% Fibonacci Retracement level.

Therefore, copper will likely continue rising as buyers target the upper side of the channel at about $4.32. A drop below the support at $4 will invalidate the bullish view.