The price of gold has reached a new all-time high, driven by expectations of lower interest rates and increased demand for safe-haven assets. Base metals, such as copper, remain weak, largely due to weak economic growth in major economies.
Both the spot gold price and the futures hit a new record on Friday, in a context in which central banks are expected to commit to cutting interest rates for the remainder of the year. The spot gold price exceeded $2,500 (2,264 euros) per ounce for the first time in historywhile gold futures rose above $2,540 per ounce on the final day of trading last week. Prices have hovered around similar levels during the Asian session on Monday.
Instead, base metals, such as copperhave remained weak due to economic concerns. The price of copper futures plummeted to a five-month low, reaching $3.93 (3.56 euros) per pound in early August, before rebounding slightly to $4.18 (3.79 euros). euros) per pound on Monday, driven by sluggish demand in China.
In the last three months, gold futures are up 5%, while copper futures are down 18%. The recent trend divergence between gold and copper suggests that Investors seek safe-haven assets and dump commodities driven by growth, amid concerns about the global economy.
Gold Price Rising Driven by Macroeconomic Forces
The macroeconomic context indicates that central banks are in the process of relaxing their monetary policies due to the decline in consumer prices and the slowdown in economic growth. Gold prices are inversely correlated with the value of the US dollar and interest rates.
First, since gold is priced in US dollars, a weaker dollar makes gold less expensive in other currencies, thus increasing demand for the precious metal. Secondly, some lower interest rates make interest-bearing assets, such as cash, less attractive, while gold becomes more attractive as a store of value.
He catalyst for the rise in gold prices may have been the disappointing information about the American real estate market released Friday, which showed home construction plunged 6.8% to a four-year low, and home building permits fell for the sixth straight month in July.
The data has further reinforced the likelihood that the Federal Reserve will initiate rate cuts in September and beyond.
Last week, both UK as EU inflation data publishedworse than expected for July, encouraging signs of a lower interest rate environment in these economies.
Furthermore, the Reserve Bank of New Zealand unexpectedly applied his first rate cut since the pandemic. The bank plans further cuts this year, having radically changed its tone since the last meeting due to the rapid deterioration of the national economy.
Besides, Safe haven demand has also boosted gold prices amid ongoing military conflicts in the Middle East and the war between Ukraine and Russia.
China’s role in shaping copper prices
China, as a major supplier and consumer of copper, plays a critical role in shaping critical metals market trends.
The rise in the price of copper at the beginning of the year was due to the production reduction in Chinadriven by a sharp decline in copper treatment rates.
However, tepid economic data from China in recent months, coupled with turmoil in global markets over fears of a recession in the UStook on August 8 to the copper prices a its lowest level in five months.
Despite the recent recovery in market confidence, which has led to a rebound in copper prices in the last week, the persistent sluggishness of the Chinese real estate sector is expected to continue to weigh on demand. However, the weakening of the US dollar may help offset some of this decline.
In the long term, copper is likely to maintain an upward trend. It’s a fundamental resource for renewable energieslos electric vehicles and the technologies of artificial intelligence.
S&P Global has forecast that copper demand will doublereaching 50 million metric tons in 2035, with the largest demand expected to come from the US, China, Europe and India.
