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In a call with clients on Tuesday, Goldman argued that Trump was likely to go ahead with a 50% tariff on copper, and recommended buying short-dated call options that would pay out if US copper prices surged 11%, according to people familiar with the matter, who asked not to be identified discussing private information.
In reality, the US president on Wednesday afternoon imposed only a limited tariff that exempted the main traded form of copper from duties altogether, causing prices in New York to tumble 22% in a matter of hours.
That evening, Goldman's commodity sales desk sent an email to clients entitled, 'No copper tariff. Mea Culpa.'
The misstep from one of the biggest and most respected banks in commodities highlights how the tariff announcement caught almost the entire copper market by surprise. Several hedge funds and bank trading desks including Goldman's are nursing losses from Wednesday's price collapse, separate people familiar with the matter said. The price plunge was double the previous record drop for the US contract in data going back to 1988.
Other big banks were similarly blindsided, with Citigroup Inc.'s salespeople sending a message on Wednesday morning to clients saying that 'our trading desk like buying the arb in copper (buy comex, sell lme).'
The call on Tuesday was the latest in a series of recommendations that Goldman made urging clients to bet on rising US copper prices. Trump had announced in early July that copper tariffs would be 50% – double the market expectations at the time – but US copper prices on Comex had only risen to about 28% above global prices on the London Metal Exchange.
While some clients fretted that there may be country-by-country exemptions to the tariffs after the US signed a trade deal with Indonesia, a major copper producer, Goldman argued that the price spread between the two markets should rise further. In a summary of the Tuesday call that was emailed by Goldman salespeople to clients, the bank said that 'full 50% tariffs' should result in the spread moving to 35%-40%.
Goldman suggested clients buy September calls with a $6.25 strike price – about 11% above the prevailing price at the time. Since the tariff announcement and resulting price collapse, the value of those options has plunged by more than 90%.
The calls and emails from salespeople are separate from the notes published by Goldman's research team. Goldman's metals analysts had also predicted that there would be 50% tariffs on copper, but in a note on Monday argued that 'minerals diplomacy' could lead to exemptions from the tariffs, and advocated taking profits on their earlier trade recommendation of going long the Comex vs LME spread.
Spokespeople for Goldman and Citi both declined to comment.
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