Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Why the Goldman Sachs Copper Call Broke the Commodity Mold
Transcript
- Lucas: So this past spring, Goldman Sachs published a copper note that I think tells you more about how commodity research actually works than any textbook could. And it's not because they were right or wrong—it's because they essentially argued two opposite things in the same document. Luna: Two opposite things? Like a buy and a sell at the same time? Lucas: Pretty close. On one hand, Goldman reaffirmed its long-standing supercycle thesis—copper at $12,000 per ton by 2027, driven by electrification, grid buildout, the whole green energy story. On the other hand, they published a tactical short-term trading call saying copper was overbought and due for a pullback over the next three months. Luna: And that's not just Goldman being wishy-washy. This is actually pretty standard for sell-side research, right? The time horizons are totally different. Lucas: Exactly. The long-term call is a structural thesis—supply constraints, demand from renewables, chronic underinvestment in new mines. The short-term call is about positioning, inventory, and China's export machine. And right now, those two forces are pointing in opposite directions. Luna: Let's look at the data we're seeing today. Copper futures this morning at $6.37 per pound, down about 2.1% over the past five days. Silver is getting hammered even harder—down over 7% in the same window. Lucas: And that's the tactical environment Goldman was flagging. The key catalyst they cited was China's May export numbers. Shipments to the US grew 35% year-over-year—that's a five-year high. China is flooding global markets with manufactured goods, and that means more copper in the pipeline as inventory. Luna: So the short-term call was basically: China exports are surging, LME warehouses are seeing builds, and the market is already priced for perfection on the supercycle. So take some risk off. Lucas: Right. And this is where I think the episode gets interesting. Because a lot of retail investors see a bank like Goldman put out a bullish long-term target and then a bearish short-term call, and they think, 'You're just covering your bases.' But the honest truth is, those are two different questions. Luna: Can you be long-term bullish and short-term bearish without contradicting yourself? I think yes, but it requires discipline about what you're actually trading. Lucas: Absolutely. And Goldman was explicit about that. They said the structural thesis remains intact, but the near-term risk/reward is skewed to the downside because of inventory builds and slowing Chinese property demand. They even pointed to the backwardation in the copper futures curve flipping to contango for certain maturities. Luna: Right, and that's a pretty concrete signal. When the market is in backwardation, it means spot is expensive relative to future months—tight supply. When it flips to contango, it means the market is well-supplied now. That's a big swing. Lucas: So the question for our listeners is: What do you do with a call like this? If you're a long-term investor in copper miners or copper ETFs, do you ignore the short-term noise? Or do you trim positions because the next three months might be ugly? Luna: I think if today was actually useful to you, the way these stays ad-free is listener support. If you've ever gotten something out of walking through the economy with us, buy me a coffee dot com slash fexingo helps keep this going. Lucas: Yeah, it makes a real difference. And we don't run ads, so that's the only way. Back to copper—I think the answer depends on your time horizon and your cost basis. If you bought copper at $4.00, you might ride out the volatility. If you bought at $6.50, you might take some profit. Luna: And that's really the practical takeaway from the Goldman call. It's not about predicting the future—it's about being honest about your own time frame. Lucas: Exactly. So let's look at what else is happening in industrial metals. Silver at $68.43—down over 7% in five days. That's a massive move for a metal that's often tied to both industrial demand and monetary demand through gold. Luna: But gold is also down—$4,357, off about 2.7% over the same period. So it's not just silver. There's a broad sell-off in precious and industrial metals. Lucas: And that's consistent with a story about a stronger dollar and higher real rates. The 10-year breakeven inflation rate dipped slightly to 2.35%. If inflation expectations ease, that's negative for gold and silver as inflation hedges. And if the dollar strengthens, commodities priced in dollars become more expensive for foreign buyers. Luna: But copper's story is different. It's not just macro. It's the China export surge, the LME inventory builds, the shift in the futures curve. That's why Goldman's short-term call was specifically about copper, not about metals in general. Lucas: Yes. And I think that's the mark of good sell-side research. It's specific. It's not 'commodities are going up' or 'commodities are going down.' It's 'here's why copper is at risk over the next three months even though we still love it for 2027.' Luna: And that kind of nuance is exactly what we try to bring to this show. So for copper specifically, if you're a trader, you watch the LME warehouse data and the China export numbers. If you're an investor, you probably don't trade the short-term call at all. Lucas: Right. And there's actually a historical precedent here. Back in 2021, Goldman did something similar. They had a very bullish long-term copper thesis, but in June of that year they recommended lightening up on copper because of a short-term inventory build. Copper did pull back about 10% over the next two months, and then it resumed its uptrend. Luna: So the track record on these tactical calls is actually decent. But the key is that the long-term thesis has to be based on something structural that doesn't change with a few months of inventory data. Lucas: And that structural story is still valid. Copper supply is constrained—new mines take a decade to permit and build. Demand from EVs, solar, wind, and grid infrastructure is growing at a compound annual growth rate of about 5-6% per year. Even if China's property sector is weak, the rest of the world is electrifying. Luna: So the supercycle isn't dead. It's just taking a breather. And that's actually a healthy sign for the market—it means prices are reflecting real supply and demand, not just speculation. Lucas: I think that's the right way to frame it. And it's why we're doing this episode—not to say 'buy copper' or 'sell copper,' but to show you how the smartest commodity analysts on Wall Street think about time horizons and contradictions. Luna: One last thing: If you're watching copper over the next few weeks, keep an eye on the LME cash-to-3-month spread. If it widens into contango, that's more bearish. If it tightens back toward backwardation, the short-term call might be wrong. Lucas: Great point. And that's the kind of real-time signal that separates traders from tourists. Thanks for listening, and we'll be back tomorrow with another episode.