Why copper's 12% surge over the past month could signal bright times ahead for the broader economy

• Copper prices have jumped as much as 12% from their May 25 low, and that could signal green shoots for the economy.
• The metal has long been viewed as a leading economic indicator as the commodity is found in all facets of the economy.
• "They say copper has a PhD in the global economy and the recent strength runs counter to the many worries we keep hearing," Ryan Detrick told Insider.

A recent surge in copper prices could indicate more green shoots in the economy even as many economists worry about an imminent recession.

Copper prices have long been viewed as a leading economic indicator because it is utilized in various sectors of the economy. Essentially, rising copper prices could signal increased demand and therefore increased economic activity, and vice versa for when copper prices fall.

After declining as much as 17% from its early 2023 high, copper prices have staged a rebound, jumping as much as 12% from its May 25 low to a high of $3.96 per pound on Thursday.

Fairlead Strategies' founder Katie Stockton highlighted potential resistance targets if the rally in copper continues.

"Incremental upside follow-through would allow for a breakout in a positive intermediate-term development that would suggest an improved economic picture. Secondary resistance is near $4.20 to $4.30 per pound," Stockton said in a Thursday note.

If copper does reach those secondary resistance levels identified by Stockton, it would represent a rally of more than 20% from its late-May low.

Carson Group chief market strategist Ryan Detrick wouldn't be surprised by a continued move higher in copper prices, as he's been calling for continued economic growth all year-long.

"They say copper has a PhD in the global economy and the recent strength runs counter to the many worries we keep hearing," Detrick told Insider on Friday. "With housing bottoming and a consumer still quite strong, we think there's a very good chance the economy can avoid a recession in 2023. To see copper improving recently could be another sign that Doctor Copper is sniffing out this lonely call."

But rising copper prices aren't always driven by an increase in demand for the commodity, and could instead be impacted by other factors. Fundstrat's Tom Lee told Insider on Friday that the recent rally in copper could potentially be attributed to quarter-end positioning dynamics, while Interactive Brokers' chief strategist Steve Sosnick said dwindling copper supplies could be to blame.

"It is notable that copper futures are in greater backwardation than normal. As prices rose over the past month, front month futures rose faster than back months. That could indicate some short-term relative scarcity that is pushing up prices," Sosnick told Insider.

Sosnick also said that recent interest rate cuts in China could be impacting copper prices more so than broad economic strength "since other key commodities like oil are hardly signaling economic strength."

Whether the recent surge in copper prices is being driven by economic strength or dwindling supplies, the sustainability of the rally will likely be the tell, and that's why investors should pay attention to where copper prices go from here.