Correlation does not imply causation.
Yet those caught on the wrong side of Goldman
Sachs’ recent base metals investment advice
will surely be feeling that the global investment bank holds
more than a marginal influence over the direction of the copper
The bank’s recent announcements have caused
shockwaves in the metals market, and if the immediate price
movements that followed its statements are a reliable
indicator, then Goldman has been calling the market right.
The April 11 announcement that
Goldman had squared its copper book
among many traders still involved in the long copper trade, and
the market slumped 6.6% over a six-day period as investors
liquidated their positions in the red metal.
Its October 6 announcement that
copper would hit $11,000 per tonne in 2011
was followed by
a less dramatic 2.5% increase, although copper was already at
27-month high at this point.
Goldman is now back in the long
and the market rallied 3.1% in the two days
that followed, but it remains to be seen whether the flagship
base metal will return to the form of late 2010, as Goldman
believes it will.
Whichever way they are betting, in addition to currencies,
production figures, macroeconomics, China, interest rates and
the direction of the wind, some traders are clearly paying
attention to how the investment bank is calling the market.