MUMBAI: Investors are flocking to the safe-haven asset, gold, in the midst of economic uncertainty. The price of gold reached a new high of $2,531.75 per ounce in the international market on Tuesday, surging by 22% in 2024 so far.
The minutes of the US Federal Reserve’s July meeting were released on Wednesday, hinting at a potential interest rate cut by the US central bank in September. With gold being a non-interest-bearing asset, lower interest rates make it a more appealing investment option.
Factors such as a weakening US dollar, geopolitical uncertainties, and increased gold buying by global central banks are attracting risk-averse investors towards gold.
Meanwhile, the prices of copper, a key industrial metal, are declining. Copper, often seen as a barometer of economic health, soared to an all-time high of $11,104.50/ounce in May on the London Metals Exchange but has now dropped to $9,260/ounce, marking an 8% increase in 2024. Concerns about demand from China, the top consumer of copper, are contributing to the downward trend.
The copper-gold ratio
As gold and copper move in opposite directions, the current copper-gold ratio stands at 3.69 times, according to data from Yes Securities. This ratio indicates the relative prices of copper and gold, with a higher ratio suggesting increased industrial demand for copper and a more positive economic outlook. Conversely, a lower ratio signifies economic uncertainty, leading to higher gold prices.
Recent reports from the August global fund manager survey by BofA Securities reveal a significant decline in global growth expectations, signaling a weaker global economy in the next 12 months. The survey also indicates diminishing optimism about China, reaching a low unseen since May 2022.
Looking ahead, copper prices are unlikely to rebound quickly, especially in light of the economic slowdown in China. The resolution of strike risks at the Escondida copper mine in Chile could alleviate supply concerns but continue to exert downward pressure on copper prices. On the other hand, the outlook for gold appears promising, with US Fed chair Jerome Powell’s upcoming speech at the Jackson Hole symposium serving as a crucial near-term catalyst.
Insight: As investors navigate through uncertain economic conditions, the contrasting performance of gold and copper provides valuable insight into market sentiment and potential economic trajectories. The dynamics observed in the copper-gold ratio reflect shifting investor preferences and macroeconomic trends, offering a nuanced perspective on global economic conditions. As central banks and geopolitical factors continue to influence market dynamics, the interplay between gold and copper prices serves as a barometer for investor sentiment and economic outlook.
