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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 market.
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 caused consternation 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 copper game 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.