JP Morgan: Gold and copper have both risen in the short term

Commodities have continued to rebound since the beginning of this year, with metals such as gold and copper performing particularly well. As optimism spreads, Morgan Stanley has stepped forward to remind investors to beware of potential pullback risks!

In its latest commodity metals weekly report, Morgan Stanley pointed out that the sharp rise in gold and copper prices reflects the market's optimistic expectations for the medium to long-term trend. However, the recent upward trend may have exceeded the short-term support of the fundamentals, and investors need to pay attention to potential pullback risks.

Regarding gold, Morgan Stanley stated that net long positions in gold bought at the beginning of March are still being held, but the recent buying frenzy has cooled down. $2150 per ounce is the support level for gold prices, and once this target is breached, it may trigger a larger-scale adjustment. The future interest rate path of the Federal Reserve will also affect gold prices.

As for copper prices, Morgan Stanley believes that the copper contract positions on LME, COMEX, and SHFE have increased by over 20% in March, reaching the highest level since June 2018. The key levels of $8800 per ton have become particularly important. Copper prices may find support at $8500-8600 per ton, and the tightening supply situation in the Chinese copper market still needs to be observed.

$2150 per ounce is an important support level for gold prices

Morgan Stanley pointed out that since the beginning of March, there has been a breakthrough growth in gold prices, but the subsequent trend has been more stable, supported above $2150 per ounce, and the recent gold buying frenzy has cooled down.

According to the CFTC trader commitment data as of last Tuesday (March 19), managed fund futures net long positions increased slightly by about 1.8 thousand contracts to about 143 thousand contracts, while futures and options net positions decreased by about 2 thousand contracts to 157 thousand contracts; over the past week and a half, COMEX gold total open interest has remained stable at about 540 thousand contracts.

$2150 per ounce is an important level where gold prices have found support so far. The FIFO flow model shows that approximately 60% of the cumulative inflows in March, about 115 thousand contracts, may have been bought at prices of $2150 per ounce or higher.

Morgan Stanley also added that once $2150 per ounce is breached, it will trigger the unwinding of positions established at the beginning of March, leading to a more sharp downward correction in prices, which could push prices back to $2050 per ounce. However, from a macro perspective, supported by the interest rate cut cycle starting in June this year by the Federal Reserve, gold prices will continue to rise later this year.

Copper prices may find support at $8500-8600 per ton

Copper prices have also experienced a significant increase this month, with copper open interest contracts on LME, COMEX, and SHFE increasing by over 20%. This indicates market optimism towards the medium to long-term trend of copper Morgan Stanley pointed out:

After reaching a peak of $9,100 per ton on March 18th, LME three-month copper prices fell at the end of last week, with a weekly decrease of about 2.3% to $8,866 per ton.

Especially in March, there was a significant impact on liquidity. Approximately 70% of the copper inflows in March may have been purchased at a price of $8,800 per ton or higher, and breaking this level could trigger a larger adjustment.

In addition, Morgan Stanley reminded that the key to whether copper prices can continue to rise lies in the tightening supply situation in the Chinese copper market. Although copper inventories on the Shanghai Futures Exchange have slightly decreased, import arbitrage and premiums remain weak, indicating that signs of increased market tension are still insufficient.

Despite short-term risks, looking at the medium term, Morgan Stanley is optimistic about the structural demand for copper in the next year, believing that prices around $8,500-$8,600 per ton may once again find support.