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Why is the commodity so popular among institutional investors?

With hedge funds and other speculative entities on Wall Street increasing net-long positions by 26% to 21,673 contracts in early February, the volume of institutions backing the red metal shot to 16-week highs. 

But what’s driving such bullish sentiment on Wall Street? It appears that institutions have been encouraged by a perfect storm of contributing factors. 

What’s Driving Interest in Copper? 

There appears to be a cocktail of supply-demand changes, green energy initiatives, and prospective policy changes driving positive sentiment towards copper, with more forecasts suggesting that the metal remains underpriced. 

Crucially, Donald Trump’s Presidency appears to have cast a bullish outlook for investors, with the administration’s announcement of environmental policies such as the repeal of the 20-year mining moratorium in Minnesota, and the advancement of controversial initiatives like the Pebble Project, are expected to boost approvals and production concerning copper. 

We’ve also seen the announcement of tariffs on aluminum and steel, which some investors are expecting to both impact copper prices and potentially result in tariffs concerning the red metal itself. 

Supply and demand imbalances have also suggested that there may be an upcoming supply deficit in the copper market, driven by decreasing ore grades, rising costs, water scarcity, and social upheaval. 

For regions that are focusing more on the green energy transition, copper’s use in electric vehicles and renewable energy infrastructure is likely to see copper prices rally further in the future. 

Will China Decide Copper’s Future? 

As the world’s leading copper consumer, China purchase more than half the annual refined copper supplies. This has signified the extent of the burden that the nation’s recent economic struggles have cast over demand for the metal. 

The announcement of the Chinese government’s stimulus packages to generate economic growth, along with lower interest rates and relaxed bank regulations, could be a significant catalyst for a resurgence in copper demand in 2025. 

Looking ahead, a return to China’s productivity could pave the way for record growth, but utility could be hampered by a prospective trade war with the United States. If we can see the US and China agree to trading protocols, we could see both economies and the price of copper experience positive growth. 

Are Hedge Funds Right to be Bullish?

With expectations for copper high, there are plenty of risks that could hamper growth if they materialize. One key source of uncertainty could be found in a prospective failure of China’s stimulus. If productivity continues to slow despite government interventions, we could see confidence in copper demand fall. 

After multiple years of growth, we may also see signs of a slowdown in the S&P 500 that could lead to volatility and more widespread investor caution across commodity markets. The unpredictability of Trump 2.0 may pave the way for a more volatile period that sees hedge funds shift their focus away from metals. 

Despite this, there are plenty of reasons to be optimistic, and the synchronization between copper and structural growth sectors like AI, the energy transition, and industrialization of developing economies suggests that there will be more demand on the horizon for the metal, even if the path towards growth isn’t as smooth as initially hoped. 

As a result, we’re seeing some impressive forecasts for copper in 2025. Leading the list of bulls, Goldman Sachs suggests a $10,160/t average price target, with Morgan Stanley placing a $9,500 price on the metal by the end of the year. 

This outlook isn’t shared by all investment banks, with RBC and BMO expecting prices to remain more stagnant at $8,800/t. Capital Economics forecasts even anticipate copper dropping below $9,000 in a bearish trend that leads to averages of just $8,000 by 2026. 

Embracing Copper’s Future

Copper may also draw increasing institutional interest as a result of Trump’s trade wars, which are generally inflationary for global economies. 

Because higher import costs are generally passed on to the consumer, the higher cost of living may see more investors concerned about inflation rotate their portfolios towards assets that are more effective in inflationary environments. 

Copper has long been identified as an industrial metal that benefits from most environments where GDP is rising. 

This could drive more interest in copper miners, according to Ed Cole, head of multi strategy, equities, and clients at Man Group. Cole points to the ‘huge structural tailwinds’ of copper, which plays a significant role in all manufactured goods, electrification, and clean tech. 

Over 2025, the multifaceted use cases of copper may mean that more institutions will be capable of using the commodity as a defensive stock to protect against the market impact of wider industrial and currency uncertainties. 

Cautious Optimism

Many hedge funds are betting big on copper in 2025, but supply and demand can be affected by a number of global factors falling into place. 

For the months ahead, all eyes will be on China’s recovery and the policies of Donald Trump. The geopolitical landscape will have a major impact on both demand for the red metal and the inflationary impact on the cost of living. 

There are plenty of reasons to be optimistic about copper in 2025, but adding the metal to your portfolio should be carried out with an element of caution. Keeping a keen eye on copper’s growth indicators must be an essential part of embracing the potential of the metal.

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