Copper price has been gradually trending upward for the past few weeks, driven by renewed investor demand and market optimism sparked by the Fed's recent interest rate cut after four years. After the Fed’s decision to cut the rates by 50 bps, copper reached its highest level since mid-July, according to Yahoo Finance. Continuing the gains from Wednesday, copper prices increased 0.8% to $9,477 per ton early on Thursday.

Since all metals are mainly priced in the greenback, a U.S. rate cut is favorable for metal prices, lowering the strength of the U.S. dollar or greenback. Market expectations of interest rates falling further in December are key tailwinds for copper prices.

According to the CME FedWatch Tool, there is a 33.5% likelihood of the Fed lowering the rate to 4.25-4.5% and a 50% likelihood of the rates falling to 4-4.25% in December. A further decline in interest rates is expected to ease pressure on manufacturers and construction firms, relieving their financial strain and supporting a boost in copper prices.

Copper to Benefit From Clean Energy Transition

The bullish stance of analysts has been supported by rising demand for energy transition metals. Copper is crucial for sectors like energy and manufacturing electric vehicles, power grids and wind turbines. With increasing focus on clean energy and global economies working toward achieving net-zero emissions, demand forecasts for the red metal are improving.

According to Mining Technology, significant investment in energy infrastructure, especially in grid expansion projects aimed at decarbonization, has greatly increased copper demand.

Accelerated AI Adoption Fuels Copper Momentum

According to Vandita Pant, BHP’s chief financial officer, as quoted in Financial Times, growth of data centers and AI, which rely on energy-intensive computing, is projected to increase global copper demand by 3.4 million tons annually by 2050.

Data centers currently account for less than 1% of copper demand and are anticipated to constitute about 6-7% of the metal’s demand by 2050, according to Vandita Pandit.

BHP, the world’s largest mining company by market capitalization, forecasts a 72% rise in global copper demand, reaching 52.5 million tons annually by 2050.

ETFs to Consider

Per Bank of America’s (BofA) forecast, as quoted on Mining Technology, copper prices will cross $10,000 per ton by 2025, driven by robust demand, supply constraints, additional interest rate cuts by the Fed and increased investment in energy transition projects.

Below, we have highlighted funds offering exposure to the red metal.

United States Copper Index Fund (CPER Quick QuoteCPER - Free Report) ) has gained 0.46% over the past month and 11.77% over the past year.

Global X Copper Miners ETF (COPX Quick QuoteCOPX - Free Report) ) has lost 0.21% over the past month but gained 15.91% over the past year.

iShares Copper and Metals Mining ETF (ICOP Quick QuoteICOP - Free Report) ) has lost 0.51% over the past month but gained 21.69% over the past year.

Sprott Junior Copper Miners ETF (COPJ Quick QuoteCOPJ - Free Report) ) has gained 0.05% over the past month and 12.64% over the past year.