The rally in metals has paused, but the music has not stopped. During this 'intermission,' blindly chasing higher gold prices may lead to months of volatile fluctuations. Conversely, focusing on signals of a recovery in the manufacturing cycle and positioning in base metals at technical support levels could be the optimal strategy for capturing the next wave of upward momentum.
After months of unidirectional surges and frenzied pursuits, the global metals market appears to have hit a 'ceiling.' In response to the recent sharp price fluctuations, JPMorgan issued a clear signal in its technical strategy report released on February 5: major metal categories such as gold, silver, and copper will enter a 'consolidation phase' in the coming weeks.
However, this does not signify the end of the bull market. According to Jason Hunter, an analyst with JPMorgan’s Global Markets Strategy team, the current adjustment is a necessary respite within a long-term upward trend.
He stated that for astute traders, the key focus lies in 'differentiation': compared to gold's typical pattern of 'sharp rise followed by pullback,' base metals (especially copper), supported by the global manufacturing cycle, exhibit stronger fundamentals and are expected to rebound ahead of gold in the second quarter.
Gold: From 'Parabolic Rise' to 'Wide-Range Fluctuations'
We believe the recent movement in gold prices represents a typical short-term reversal after a sharp rise, rather than the concluding phase of a long-term uptrend," wrote JPMorgan technical strategist Jason Hunter in the report.
Hunter noted that technical charts indicate that after experiencing parabolic growth, momentum in gold prices has shown clear signs of exhaustion. He predicted that gold prices will form a wide-ranging 'holding pattern' over the next few weeks or even months. During this period, the 5,000-dollar mark and the 5,100-5,150-dollar range will pose significant resistance, limiting the short-term rebound potential of gold prices.
Despite facing short-term technical corrections, the core logic supporting the gold bull market—the theme of 'currency debasement'—remains intact. The report specifically pointed out that the US Dollar Index (DXY) continues to trade below the 100 mark, which is a crucial long-term bearish signal. As long as the dollar stays below this level, the market remains susceptible to a renewed downtrend starting from early 2025.
Moreover, the S&P 500-to-Gold ratio recently broke below a decade-long support level, showing striking similarities to market structures in the late 1970s, suggesting that the long-term trend of capital flowing into hard assets is far from over.
Therefore, the current decline is not a trend reversal but rather a 'half-time break' to digest the rapid gains seen earlier.
Copper's 'Expectation Gap': The Truth Behind PMI Data
Compared to gold's safe-haven attributes, the movement of copper prices is more constrained by the global economic cycle.
The recent deceleration in LME copper prices after touching above $14,000 has sparked concerns in the market about whether copper prices have "deviated from fundamentals."
Through regression analysis, JPMorgan found that the current year-on-year increase in copper prices implies that the global manufacturing PMI should reach around 53. However, the actual PMI reading is only near 50.5.
On the surface, copper prices seem overly optimistic, overextending future growth. However, JPMorgan’s strategists offer a different interpretation through cross-asset comparisons – this is not irrational exuberance for copper but rather the market collectively betting on pro-cyclical recovery.
The report references "analog semiconductor stocks" as a benchmark. These assets are typically highly correlated with the manufacturing cycle and less influenced by the theme of "currency depreciation." Data shows that the price trend of analog semiconductor stocks also implies that the PMI will rise to around 52 by the end of Q1 2026.
"This cross-market backdrop enhances the validity of traditional technical analysis," said Jason Hunter. Since both semiconductors and copper are pricing in a stronger manufacturing cycle, it demonstrates that the logic of pro-cyclical rotation is deeply rooted across asset classes.
Hunter believes that the current pullback in copper prices is more of a technical correction rather than a collapse of fundamental expectations.
Strategy Divergence: "Strong Copper, Weak Gold" in Q2
Based on the aforementioned logic, JPMorgan has made predictions about market trends in the coming months: during the consolidation phase, base metals will receive more support than precious metals.
While both require consolidation, the market drivers differ. Gold is currently constrained by crowded trades in "currency depreciation" and profit-taking; whereas copper, in addition to benefiting from the depreciation narrative, is further propelled by strong "pro-cyclical rotation" dynamics.
Although LME copper has shown a deceleration pattern after reaching its medium-term target of $14,000-14,596, it has not exhibited a sharp 'reversal' signal like gold.
JPMorgan predicts that this pro-cyclical momentum will help copper and base metals resume their upward trend in the second quarter 'earlier' than precious metals after consolidation ends.
To navigate the upcoming consolidation period, JPMorgan advises investors to focus on specific tactical support levels.
For copper, the $12,074-12,105 range is expected to provide initial bottom support for the market, making it an ideal position for short-term trading; while the $11,100-11,200 range represents a multi-year breakout zone, and as long as prices remain above this level, the long-term bull market structure remains intact.
By comparison, purchasing gold requires more patience. Strategists recommend first focusing on $4,500 (the 50-day moving average), but the more critical buying range lies between $4,264 and $4,381 – the breakout zone from Q4 2025, which is expected to offer stronger support.
Additionally, Brent crude oil is also expected to maintain range-bound fluctuations. The rally driven by geopolitical factors has encountered resistance at the 'upper $60s,' and a sustained breakout above $70 is unlikely. However, the dense moving averages in the $61.75-62.18 range will provide a solid floor for oil prices.
In simple terms, the conclusion of JPMorgan's report is: the metal rally takes a pause, but the music has not stopped.
During this 'intermission,' blindly chasing higher gold prices may lead to months of volatile torment. Instead, monitoring signals of a recovery in the manufacturing cycle and positioning base metals around technical support levels might be the best strategy to capture the next wave of price increases.
Editor/Rice
