Gold and Copper Surge Together: A Deep Dive into the Commodity Bull Market Logic – Derivatives Trends and Risk Analysis

Introduction: Gold and Copper Surge Together, Commodity Markets Enter a New Cycle

Since 2025, global commodity markets have witnessed a rare "precious and industrial metals resonance" – gold and copper prices have simultaneously hit multi-year highs. According to market data agencies, gold prices are approaching historical highs after years of stagnation, while copper prices continue to climb driven by expectations of a global manufacturing recovery. This "dual gold rally" not only breaks the traditional logic of gold as a safe-haven asset and copper as an industrial metal but also sparks widespread debate on the sustainability of a new commodity bull market.

This article delves into the structural forces behind the simultaneous rise of gold and copper from three dimensions: macro drivers, derivatives market dynamics, and potential risks, exploring whether this trend is sustainable.

Macro Driver 1: Fed Rate Cut Expectations and Dollar Credit Restructuring

As a non-yielding asset, gold's pricing is highly correlated with Fed monetary policy. Since Q4 2024, as US inflation data moderated and the labor market showed marginal cooling signals, market expectations for a Fed rate cut in H1 2025 have rapidly intensified. According to the latest Fed dot plot and public comments from several officials, the rate cut path is becoming clearer. Lower real interest rate expectations directly reduce the opportunity cost of holding gold, driving sustained inflows into gold ETFs and futures markets.

Meanwhile, a weakening US dollar index further enhances the appeal of dollar-denominated gold. Over the past two years, despite the dollar's strength due to US economic resilience, policy adjustments in other major economies (especially the Eurozone and Japan) have loosened the dollar's relative purchasing power. According to the Bank for International Settlements (BIS), the dollar's real effective exchange rate in Q1 2025 fell approximately X% from its 2024 peak (using a vague expression). The negative correlation between gold and the dollar is thus fully activated.

On a deeper level, some emerging market central banks continue to increase gold reserves, reflecting caution toward the dollar credit system. Data shows that global central bank gold purchases exceeded 1,000 tons for the third consecutive year in 2024, with China, Poland, and India as major buyers. This structural demand provides a solid floor for gold prices.

Macro Driver 2: Global Manufacturing Recovery and Green Transition Boost Copper Demand

Copper, often called "Dr. Copper," tends to lead economic cycles. In early 2025, the global manufacturing PMI, after nearly two years of contraction, crossed the 50 threshold in March, with significant contributions from the US, EU, and Southeast Asia. According to S&P Global, the global manufacturing PMI flash reading for April hit an 18-month high, with new orders improving. This marginal recovery in manufacturing signals a revival in industrial demand for base metals like copper and zinc.

More critically, the structural demand from the green energy transition cannot be ignored. Solar, wind, new energy vehicles, and grid upgrades are driving exponential growth in copper consumption. According to the International Energy Agency (IEA), global copper demand is expected to grow by nearly 60% by 2030 compared to 2020, with renewable energy-related demand accounting for over half. On the supply side, copper mines face aging, declining grades, and delays in new project approvals. Under this supply-demand imbalance, multiple investment banks have raised their long-term copper price forecasts.

Notably, copper's rally is no longer solely dependent on Chinese demand. Infrastructure and manufacturing expansion in India, Southeast Asia, and the Middle East are becoming new marginal sources of demand. This diversified demand structure reduces the risk of single-market volatility and strengthens the resilience of the copper bull thesis.

Macro Driver 3: Geopolitical Risks and Safe-Haven Sentiment Resonance

Another driver behind the simultaneous rise of gold and copper is the persistent geopolitical uncertainty. The prolonged Russia-Ukraine conflict, recurring tensions in the Middle East, and potential escalation of global trade frictions have led to a simultaneous surge in demand for safe-haven assets and strategic resources. Gold benefits from its safe-haven nature, while copper, due to its critical role in defense, aerospace, and high-tech industries, is seen as a strategic metal amid "great power competition."

Since 2025, tighter US and EU sanctions on Russia and rising resource nationalism in some countries have exacerbated fears of supply chain disruptions. For example, frequent community protests and labor negotiations in major copper-producing regions like Chile and Peru have directly impacted concentrate shipment schedules. This supply-side disruption, combined with optimistic demand expectations, has fueled bullish sentiment in copper futures.

At the same time, gold's safe-haven appeal has been reinforced during geopolitical conflicts. According to the World Gold Council, gold ETF net inflows in Q1 2025 hit a three-year high, with the largest contributions from European and Asian investors. Notably, Bitcoin and other digital currencies, traditionally negatively correlated with gold, experienced a pullback during the same period, further strengthening gold's status as the "ultimate safe-haven asset."

Derivatives Market Trends: Surging Volumes and Strategy Divergence

With the gold-copper rally, commodity derivatives markets have become highly active. According to exchange data, COMEX gold futures average daily open interest grew approximately 30% year-on-year in Q1 2025, with even larger increases in options trading volumes. In the copper market, LME copper futures open interest has also rebounded to near historical highs.

From a strategy perspective, institutional investors are showing a two-way split: some hedge funds are buying call options or constructing bull call spreads to bet on further price increases, while others are taking advantage of elevated volatility by selling out-of-the-money call options or building butterfly spreads to capture time value. Meanwhile, hedging activity from producers and consumers has also increased significantly – mining companies are increasing forward selling to lock in profits, while copper-using industries like cable and auto parts are actively buying futures or options to hedge against rising costs.

Innovative products have also emerged in the derivatives market. For example, over-the-counter options tracking the "gold-to-copper ratio" (price of gold per ounce divided by price of copper per ton) have seen increased trading volumes, with investors using mean-reversion strategies when the ratio deviates from historical averages. Additionally, structured notes linked to copper and green bonds have started appearing in private banking channels, combining copper price performance with ESG investment themes.

Risks and Challenges: Can the Bull Market Sustain?

Despite the seemingly supportive macro environment for gold and copper, markets must be wary of the following risks:

• Inflation Expectations and Fed Policy Path Uncertainty: If core US inflation data unexpectedly rebounds, the Fed may delay or even halt the rate-cutting process, directly undermining the gold bull thesis. History has shown that gold often performs better in the early stages of a easing cycle than at the end of a tightening cycle.
• Sustainability of Global Manufacturing Recovery in Doubt: The current PMI rebound is partly driven by inventory restocking. If final demand fails to pick up, copper prices could face a correction due to "expectation gaps." Additionally, if China's economic recovery (especially in the real estate sector) falls short of expectations, a key pillar of copper demand could weaken.
• Marginal Changes in Geopolitical Situations: If signs of a ceasefire or trade agreement emerge, gold's safe-haven premium could quickly evaporate. Meanwhile, resource-rich countries may increase supply due to higher copper prices – for example, the Democratic Republic of Congo and Peru have announced plans to expand mine output.
• Leverage Risks in Derivatives Markets: Current futures markets show high concentration of long and short positions. Once stop-loss orders or margin calls are triggered, chain reactions could lead to sharp corrections. Regulators have repeatedly warned against excessive speculation.

Conclusion: Bull Market Foundation Remains, But Beware of Short-Term Noise

In summary, the simultaneous surge in gold and copper is no coincidence. It reflects multiple structural changes in the post-pandemic global economy as it transitions from "stagflation" to a "weak recovery" – easing expectations, green transition, and geopolitical tensions form the solid foundation of this commodity bull market. As long as the Fed's rate-cutting direction remains unchanged, global manufacturing continues its moderate recovery, and geopolitical tensions do not quickly subside, the upward logic for gold and copper is likely to persist.

However, markets are never short of surprises. Investors must recognize that current prices already incorporate a significant amount of optimistic expectations. Any slight disruption in fundamentals could trigger a correction beyond expectations. For derivatives participants, managing positions and hedging risks is more important than predicting direction.

Risk Warning

The above content is for reference only and does not constitute any form of investment advice. Commodity and derivatives trading involves high risks, and price fluctuations may result in loss of principal. Past performance does not guarantee future results. Investors should make independent decisions based on their own risk tolerance and professional judgment. Markets carry risks; invest with caution.