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Copper, recognized as a reliable economic indicator for decades, is nearing record highs.
Seasoned crypto traders may recall periods when bitcoin (BTC) and copper exhibited a strong positive correlation and may quickly draw bullish conclusions from the recent rally in the red metal. If that's not enough, BTC's best years have been characterized by a rally in the copper-gold ratio, which is beginning to rise.
However, the latest copper rally is driven by factors other than positive cues from global economy, warranting caution while seeing it as a bullish indicator for risk assets, including BTC.
According to ING, copper's year-to-date increase of 12% to $5.10 per pound on COMEX has been primarily driven by President Donald Trump's trade tariffs, which pose risks to both the U.S. and global economies. These aggressive policy moves likely led the Federal Reserve to lower growth forecasts while raising inflation projections this week.
That's because the rally in copper is mainly led by President Donald Trump's aggressive trade tariffs, which pose a risk to the U.S. and the global economy.
"Copper is up around 12% so far this year, driven mostly by uncertainty over Trump's trade policies. Tariff news is likely to continue to dictate price direction in the months ahead," analysts at ING said in a note to clients on March 18.
The not-so-bullish nature of the ongoing copper rally is also explained by losses sideways trading in the Aussie dollar-U.S. dollar exchange rate.
Australia is the world's 7th largest producer of copper and the 3rd largest exporter of copper. As such, the AUD and copper prices have historically boasted a correlation coefficient of over 0.80. But it's not working this time, probably due to the tariffs-led surge in copper.
Don't forget the recent China stimulus
The other factors powering the copper rally, such as the recent China stimulus, could be positive for bitcoin and risk-taking in general. China, the world's factory, is the largest importer of commodities.
Early this week, Beijing announced its most potent plan in decades to boost domestic consumption as it battles external uncertainties posed by Trump's tariffs. The plan noted a direct link between consumption, affordable childcare and the country’s long-running property crisis.
"The policy package includes efforts to increase household income, spur spending, and support population growth. Fresh data was also released for the first two months of the year showing Chinese consumption, investment and industrial production exceeding estimates," ING analysts noted, explaining this week's copper price rise.
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