To Chile’s delight, BofA forecasts copper price above US$5 per pound

RIO DE JANEIRO, BRAZIL -October has proven to be an up month for commodities, and according to a report from Bank of America (BofA), this trend will continue for a while, pushing copper past the US$5 per pound threshold.

Chile’s main export product rose 5.86% to US$4.788 per pound on the London Metal Exchange on Friday, according to the Chilean Copper Commission (Cochilco), while Comex futures rose more than 3% to US$4.770.

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Thus, the metal is about to close in October with a cumulative increase of 12.86%, its best month gain since February this year. For the same reason, BofA analysts believe that the upward trend could continue until the end of the month.

“Copper prices surged on Oct. 13 following the release of U.S. consumer price index data,” they explain, noting that downside risk for copper is less unlikely at US$3.73 or US$3.45.

“A bullish pattern may form this week with a close above US$4.40. There seems to be plenty of room for a new dynamic. The level of the pattern in conjunction with the breakout point is estimated to be bullish at US$5. The pattern has taken 23 weeks to form, so we expect the recovery to occur as early as 15 weeks but may take as long as 23 weeks. This week’s low of US$4.25 is likely to be the key support point to maintain conviction in this breakout/vision,” the report said.

Looking ahead to the end of the month, BofA believes that a break of the long-term range of US$2.00 to US$4.50 would extend upside opportunities for copper to US$5.67 initially. “Fibonacci estimates for the big picture are US$6.30 and possibly US$7.33,” it concludes.

OIL FUTURES

Oil prices are also expected to show an upward trend in October, after breaking through the US$81 per barrel level previously raised by the Bank. However, they do not rule out a possible correction before the end of the month due to the bearish momentum and trend divergences.

“The weekly crude oil chart has made three new highs, and the relative strength index and MACD have made a third lower high. This pattern rhymes with 2018, and the main difference between then and now is that oil prices in 2018 did not have a secular technical bias to the upside, but to the downside,” they comment.

“If momentum picks up and price follows, we estimate the risk of a correction to be around 15%, which would test the rising trend line and/or the 50-week moving average (SMA) in 4Q21 at around US$65-68,” they add.

Currently, Brent crude is at US$84.75 per barrel after a monthly increase of 7.93%, while comparable West Texas Intermediate (WTI) crude is up 9.54% at US$82.19. This would put both on the verge of completing their best month since June this year.

“WTI crude oil prices have risen above the high at point to reach a new seven-year high and underline the secular oil theme we have been presenting since May 2021. However, the trend is overbought for the second time this year, and there is a risk of consolidation or correction,” they said.

“We remain convinced of a long-term uptrend, especially since WTI oil futures are trading above the 50-meter SMA (simple moving average) at US$56.41. Sometimes a broken trend line, such as the line starting at 2008 high, is retested. If there is a deeper correction, a buy point could be a retest of this line in 2022,” it concluded.