The stellar rally that’s seen base metals dominate commodities markets this year is wavering, leaving traders and analysts to fret about whether gains are at an end.
Of the six industrial metals that make up the London Metal Exchange LMEX Index, three fell on Thursday as the others fluctuated, threatening another drop for the index when it updates at the end of the day. Nickel lead the decliners, tumbling 1.3 percent as of 2:45 p.m. in London.
The wobble may give pause to traders after year-to-date gains that have already surpassed all of 2016’s. Global economic growth, a weaker dollar and official moves that disrupted supply in China have stoked the six metals that make up the index, and it’s up about 22 percent this year through Wednesday, beating 2016’s 21 percent advance.
“We’ve been advising clients to take profits since the end of August, and if anything my position on that has hardened,” Guy Wolf, global head of market analytics at Marex Spectron Ltd., said by phone from London. “We’re definitely due a correction, but the hope that this will be a deep reversal is probably wishful thinking.”
Investors may instead view any major dip as a buying opportunity amid signs that metals are still in a bull market, he said. Fund managers have increased net bullish bets on copper to a record during the rally, according to CFTC data.
All the same, the chorus of those preaching caution has been growing in recent weeks. Analysts at Morgan Stanley said the inverse correlation between the dollar and metals makes prices vulnerable to any rebound in the greenback. Crispin Odey, whose London-based Odey Asset Management oversees about $6 billion, has warned about “partying” markets and is shorting metal stocks in anticipation of slowing economic growth in China.
But selling by funds trading on short-term changes in momentum may also be dampened by commodity-trading advisors running longer-term technical strategies, according to Keith Wildie, head of commodity volatility at Vantage Capital Markets Ltd. These are still signalling that now’s a good time to buy, he said.
“The medium-to-long-term CTA strategies are a material distance away from getting a sell signal, so any selloff may well be limited as they continue to accumulate,” he said by email. “The rapidity of the price move means they are unlikely to get a sell signal even with a move lower, and as such we see any market weakness being bought.”