MUMBAI
:Investors are turning to safety, leading to a rally in the safe haven asset – gold. On Tuesday, the price of gold hit a new high of $2,531.75 per ounce on the international market. So far in 2024, global gold prices have risen by 22%.
Minutes from the US Federal Reserve’s July meeting were released on Wednesday, pointing to a possible rate cut by the US central bank in September. Gold is a non-interest bearing asset, so lower interest rates make the yellow metal a relatively attractive investment option.
The weakening US dollar, persistent geopolitical uncertainties and a gold-buying spree by global central banks have attracted risk-averse investors towards gold.
On the other hand, prices for copper, which is used as an input in many industries and products, are falling. Copper has wide industrial use, so it is often considered an indicator of overall economic health.
On the London Metal Exchange, copper hit an intraday high of $11,104.50 an ounce in May, but now stands at $9,260 an ounce. In 2024, copper is up just 8%. There are concerns about demand from China, the world’s largest consumer of the metal.
The copper-gold ratio
Due to contrasting price movements of these commodities, the copper-gold ratio currently stands at 3.69 times, as per data compiled by Yes Securities. This is in contrast to the readings of over four and five times seen in the recent past.
The ratio is calculated by dividing the current price of copper per ounce by the current price of gold per ounce. A higher copper-gold ratio means that copper is more expensive than gold. This means higher industrial demand for copper and a positive outlook for economic growth. A lower copper-gold ratio is seen as a sign of economic uncertainty, which causes increased inflows of gold, driving up its price.
Global growth expectations are currently faltering. According to BofA Securities’ August survey of global fund managers, global growth expectations fell sharply compared with July, hitting an eight-month low, as respondents expect a weaker global economy over the next 12 months. The survey also showed that optimism about China was the lowest since May 2022.
As things stand, copper prices are unlikely to see a quick recovery, especially given the economic slowdown in China. Easing strike risks at a key copper mine, Escondida in Chile, may bring some respite to supply, adding to the downward pressure on copper prices. The outlook for gold appears to be encouraging, with a key short-term signal being US Federal Reserve Chairman Jerome Powell’s keynote speech at the Jackson Hole symposium on Friday.
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