Copper Futures Seen Rallying 11% on Fibonacci Retracement

Copper prices, which gained the most in a week yesterday, may climb to $4.20 a pound for the first time since September, according to technical analysis by Paul Kavanaugh, a senior trader at PFGBest.

The futures contract for July delivery will rise 11 percent if prices on the Comex in New York top the 50 percent Fibonacci retracement level of $3.803 within a couple of trading sessions, Kavanaugh said in a telephone interview yesterday. The metal closed yesterday at $3.7735, rising 1.4 percent, the biggest gain since April 26. Prices still are down 1.5 percent in May, heading for the biggest monthly decline of the year.

“It is encouraging to see that copper is trying to claw back,” Kavanaugh said, noting that the 100 percent Fibonacci retracement level is $4.526. “In the short term, we will see some strength.”

Copper prices still are up 9.8 percent this year, partly on expectations that global demand will exceed mine output. PNB Paribas increased its forecast for a production deficit in 2012 to 400,000 metric tons on May 4 from an earlier estimate of 300,000 tons.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index.

Fibonacci analysis is based on the theory that prices tend to drop or climb by certain percentages after reaching a high or low. A break above resistance or below support indicates a commodity may move to the next level. The difference between high and low points on charts is divided into retracement levels based on ratios that were described by 13th century mathematician Leonardo of Pisa, known as Fibonacci, and correspond to proportions found in nature.

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