Welcome to Kitco News' 2022 outlook series. The new year will be filled with uncertainty as the Federal Reserve looks to pivot and tighten its monetary policies. At the same time, the inflation threat continues to grow, which means real rates will remain in low to negative territory. Stay tuned to Kitco News to learn from the experts on how to navigate turbulent financial markets in 2022.
(Kitco News) - It is safe to say that 2021 was a very strong year for base metals. As inflation kicked in the price of raw materials rose. One major factor was the lack of workers in the mines due to the COVID-19 pandemic. Many developing nations had to close mines and refineries with big infection rates and dampened production levels. Companies like Southern Copper, BHP, and Glencore all reported a reduction in production levels due to the pandemic. Since then things have got better but it is important to watch their production numbers closely for any changes.
In addition to the lack of supply, the electric vehicle boom added to demand. A recent Europen statistic showed that the percentage of new vehicles being purchased fell but the growth in sales of electric vehicles is still managing to grow month on month. In the U.K. alone sales of plug-in hybrid electric vehicles also rose 40% year on year.
Back to the price action, the weekly chart below shows a 20.25% increase in the price of copper over 2021. This is not as big as the 80% rise from the low of 2020 to the end of the year but copper producers will still be happy with the trend. Speaking of the trend, the price has now found itself in a strong consolidation zone between $4.02/lb and $4.88/oz. On the chart, one of the main features is a wedge type formation and any break of this could up us a big clue to the future trajectory of the price.
The shorter-term daily chart shows the extent of the consolidation zone the price is currently in. The price is currently testing the point in which most contacts have been made this year. This area at $4.40/lb has been like a magnet for the price this year with around 16 touches of the area being observed. The good news for copper bulls is that there has been a mini-rally of late and the price has moved around 7% higher since the recent low of $4.11/lb was printed. Having said that $4.50/lb was used as a resistance zone again but this could be a new higher low higher high pattern. The demand for electric vehicles will keep copper afloat over the next year the one issue that copper bulls may face is the growing production numbers as nations deal with the pandemic with more efficiency. If the consolidation low or chart pattern holds there is every chance the price could move higher as demand increases.
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