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.
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