EC Two Metals And An Interest Rate

No doubt about it. It’s been a good year for gold. Bullion prices have climbed 29 percent over the past 12 months. However, the same can’t be said for gold’s Comex stablemate, copper. While today’s price for the red metal is virtually the same as it was a year ago, its pathway has been decidedly more perilous. Copper’s only now recovering from a 20% plunge induced by the coronavirus pandemic. But it’s that very bounce that’s attracted the attention of speculators and economic pundits.

Over the years, copper’s earned a reputation as a bellwether of boom and bust cycles, rightly or wrongly. There’s a pervasive optimism driving copper prices now as the nation emerges from shutdown. Copper is an industrial metal with more than two-thirds of world supply going into building construction and electronics. The metal fares well when demand is high and that’s usually when the economy’s in high gear.

No wonder it’s now being weighed as a momentum play. On a technical basis, the potential upside for the red metal is actually better than gold’s (23% vs. 19%, respectively).

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Gold’s price is influenced more by interest rates and inflation expectations rather than shifts in production and consumption. There just isn’t the same supply-demand dynamic at work on bullion as there is with copper. Most of the world’s gold supply simply gets stored and transferred from one vault to another.

Gold, above all, is a safe haven asset, hoarded in times of economic distress and upheaval. In a sense, gold is a barometer of fear; copper’s price measures economic optimism, quite the opposite.

Over the long term, the two metals tend to move in the same direction but, every once in a while, they diverge. Those excursions, as we shall see, are telling.  The copper market, too, tends to be more volatile than gold, implying a greater sensitivity to fundamental trends.

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Jeremy Schmeltz 1 month ago Member's comment

Great points well researched, Thank you!

Laurent Eliane 1 month ago Member's comment

Nice research and grafics. Thanks for sharing.