The movement in the copper-to-gold and gold-to-silver price ratios suggests that copper prices may further increase in the days to come.
Commodity derivatives traders track these ratios to get an idea of how prices would move and they trade in commodities in line with these ratios. For example: If the gold-copper ratio is to rise, traders would sell gold and buy copper.
The copper-silver ratio is expected to go up, with some more increase in copper prices. Similarly, gold-silver ratio may fall, with an expected rise in silver prices. Both these ratios may move up if gold prices fall and copper and silver prices do not move. But, fundamentals suggest that gold will not fall much and other metals could rise faster than gold on renewed hopes of recovery in global markets.
“Copper has seen a steep fall from its all-time high and, from here on, there is a possibility for prices to rise,” said Kedia Commodities MD Ajay Kedia.
The trend has already begun, with copper prices rising 10.55 per cent since the October-4 lows, while silver is up 7.40 per cent in the period and gold has risen just 3.5 per cent.
Copper-gold ratio saw its peak when copper hit an all-time high in January on the growing demand from China. The ratio hit a peak of 7.33 in January, and then went as low as 4.18 on October 4 when copper was at its low.
Around the same time, gold had also hit new highs due to the euro crisis, coupled with slow growth in the US.
China’s copper imports fell in May but have increased in the last couple of months. This indicates that demand for the metal revived and this will definitely push prices of the commodity. “A rise is seen in copper due to fundamentals turning positive,” said Atul Shah, chief operating officer, Emkay Commotrade.
According to metal analyst with Barclays Capital, “Selective easing has been underway in China with Premier Wen announcing detailed financial/ lending and tax policies to support the SME sector. This should help the smaller scale copper fabricators and help to improve these fabricators’ appetite for refined copper imports.”
Meanwhile, gold has also started moving up since past one or two weeks.“Gold may continue to rise as there are hopes of crisis getting resolved,” said Ajay Kedia.however. He added the spike in copper will be higher compared to gold.
Also, in the case of gold silver ratio, it has crossed the 50 mark for the first time since May, indicating that gold prices are on a rally. But market participants expect the ratio to come down a bit as silver with industrial usage is expected to track copper and may go up faster than gold.
Among the three metals, copper prices will begin to give higher returns compared to gold and silver.
Gold has fallen four per cent in the last one month on MCX, while copper has moved up by 11 per cent.
