Copper futures closed at a record high of $6.71 per pound on Tuesday, driven by a combination of supply shortages and investor fears that US debt management will erode the dollar. This "debasement trade" is simultaneously lifting prices for gold, silver, and Bitcoin.
September copper contracts on the Comex exchange settled up roughly 1.6%, marking the strongest closing price in the metal's history. While physical supply constraints triggered the initial rally earlier in August, monetary concerns have since become the primary driver. London Metal Exchange stockpiles fell by 14% since late July to 214,550 tonnes, tightening the market. Additionally, Chile lowered its output forecast for the second consecutive quarter, and an outage at Indonesia's Gresik smelter further restricted availability.
The shift toward scarce assets is fueled by actions from the US Treasury, which recently doubled its maximum bond buyback size to at least $4 billion from $2 billion. Critics view this expanded program as a form of stealth easing that shifts pressure onto the currency. Consequently, the dollar index has fallen to near three-month lows after its third losing week in four.
Gold prices have responded strongly to this backdrop, trading around $4,666 an ounce. The metal is tracking its best month since 1999 and has risen for five straight weeks, gaining more than 5% in the most recent week alone. Silver is holding near $69 per ounce. Michael Hsueh, an analyst at Deutsche Bank, sees potential for gold to reach $4,800, which would extend its three-month high.
Ray Dalio, founder of Bridgewater Associates, noted that the government's financial condition is at an inflection point. This sentiment has extended to the cryptocurrency market, where Bitcoin has moved in lockstep with precious metals. Bitcoin traded near $78,900 on Tuesday, up about 0.23% in 24 hours. The largest cryptocurrency briefly surpassed $81,000 earlier in the day, its strongest level since May. Its 22% jump last week ranked as one of its sharpest three-day rallies in years.
The Treasury's announcement also triggered a significant reaction among crypto traders. CoinGlass data showed that more than $4 billion in short positions were liquidated during the breakout. Stephen Coltman, head of macro at asset manager 21Shares, told CNBC that the buyback mattered more for its message than its size, stating that the signaling effect was very powerful.
A single policy move now underpins three distinct market trends. Copper faces a physical supply squeeze, gold reflects concerns over central bank credibility, and Bitcoin experiences a short squeeze. Whether these trends continue may hinge on the dollar's next move, as traders monitor upcoming Treasury buyback operations for signs that pressure on the currency deepens or fades.