Photo by Ra Dragon on Unsplash

Copper prices retreated on Monday as rising US Treasury yields placed pressure on metals prices. Risk-on sentiment to kick off 2022 saw US Treasury yields climb higher, with the US 10-year yield trading as high as 1.64%. Greenback strength saw front-month copper COMEX (Commodities Exchange) contracts fall by roughly 0.9%. Gold fell by 1.5% while silver declined by almost 1.75%.

Copper prices have notably cooled from May and November peaks, as central banks around the world begin to reign in pandemic-era stimulus programs. The headwinds associated with tighter monetary policy may continue to weigh on metals prices, as market participants analyze the varying paths central banks appear to be taking.

An easing of policy in China, contrary to the actions of most major central banks, could provide a short-term boost to copper prices through the form of rekindled domestic demand. Should China’s housing market embark upon a stunning recovery, the restart of infrastructure projects throughout the country could buoy prices.

COPPER FUTURES DAILY CHART

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Chart created with TradingView

Monday’s pullback keeps price constrained to the key pivot zone that has been carved out below $4.500 over the last 6-8 months. Monday’s lows coincided with a test of the 100-day moving average, from which price promptly bounced. Copper remains vulnerable to the key macro themes at hand, with today offering a glimpse of the impact of higher US rates and a stronger US Dollar.

Whether or not an economic recovery in China could offset the impacts of the impending Federal Reserve accelerated taper remains to be seen. In the near-term, copper may remain at the mercy of volatility in short-term rates and potential US Dollar strength.