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Copper: Trump’s Gold?

Bears were royally trumped following the largely unanticipated U.S. presidential result. Markets have been rocked and roiled following Donald Trump’s election victory, and not entirely in expected or predictable ways. Equity markets, after initial uncertainty, posted gains. The S&P 500 ended 1.7% higher between the closes of November 7 and November 10.

Base metals, though, enjoyed a post-Trump jump through the November 10 close, with the LMEX index gaining 6.0%. Anticipation of President-elect Trump’s infrastructure and construction spending plans appear to have provided a fillip to industrial metal prices. Copper was the stand-out performer on the LME complex, gaining 9.9% and closing at US$5,601 per tonne on a three-month basis. The market continued its near-vertical ascent on November 11, breaching US$6,000 per tonne, and was trading around US$5,900 per tonne at the time of writing, on course for the red metal’s best weekly performance since 1980.

Gold, meanwhile, had been widely lauded as the “Trump trade.” Whilst enjoying some volatility after the election result, and reaching a high of about US$1,337 per ounce on November 9, gold closed nearer to the day’s lows, at just under US$1,278 per ounce. Perhaps with a more humble and conciliatory post-victory attitude, and the rhetoric dial turned right down, Trump may have presented himself as a less risky prospect in the immediate aftermath (along with a slower path to rate rises). This was in significant contrast to price action post-Brexit, which saw greater volatility and higher prices. Gold was trading further down, at around US$1,258 per ounce, at the time of writing. Gold in Mexican peso terms did, however, leap 9.5% from November 7 to November 10.

One must question the sustainability of such a short, sharp price reaction.

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Nov 17, 2016
Research