Recent data from the Consumer Price Index (CPI) has reduced investor interest in gold and copper, causing prices for the two metals to falter amid mixed cues about inflation in the United States. Prices for the precious metal steadied last week after a month of relative lows while copper prices went down partly thanks to growing concerns over reduced imports by China, arguably the largest copper consumer on the globe.
CPI data showed that consumer inflation levels in the U.S. went up from June to July and were well over the U.S. Federal Reserve’s annual inflation target range. The data inspired reduced optimism in the capital markets and contributed to an increase in volatility levels in stocks and risk-driven assets, pushing more investors away from gold as a safe haven to the dollar.
Gold has traditionally seen an increase in demand and prices during times of economic upheaval because it can allow investors to retain the value of their holdings. However, even though the global economy has been wracked by issue after issue for several years, actions by the U.S. Fed and other central banks have hampered investor interest in the precious metal.
As the energy crisis worsened and most countries around the world faced increasing living costs, the Fed increased benchmark interest rates to fight against inflation. Consecutive interest rate hikes in 2022 and 2023 increased investor interest in assets that would pay them interest rates and reduced demand for gold even though conditions were ripe for gold to flourish as a safe-haven asset.
All indications show that the Fed will keep benchmark interest rates steady next month, which will likely have a dampening effect on gold demand and prices.
Copper, on the other hand, saw its prices fall to under $8,000 a ton in May due to poor economic data from major copper consumer China. While most of the world loosened and ultimately removed coronavirus lockdown policies, China kept large swathes of territory locked down well into late 2023, crippling the nation’s economic growth and hampering the global economy as well.
Although copper gained when China finally ended lockdowns and began ramping up manufacturing to pre-COVID levels, the red metal has lost most of these gains. Amalgamated Metal Trading’s head of research Dan Smith said that May was an especially slow month for industrial metals in terms of demand. He noted that disappointing economic data from China has also added pressure to metals markets and contributed to their poor performance in recent months.
Major copper producers such as Southern Copper Corporation (NYSE: SCCO) are likely to keep tabs on how developments in China unfold so that they get an idea about how market conditions could evolve over the coming months and years.
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