“Goldman Sachs Group Inc. this week forecast copper to trade at $6,700 in the next three months, a 22% downgrade from its previous outlook.” – Copper price rebounds despite weak economic activity in China- Mining.com
“Unfortunately, right now trying to locate a hard bottom in copper is proving to be a difficult task. China, rates, recession fears and supply chain issues are still there. The dominoes are falling.” – ” Phil Streible, chief market strategist for Blue Line Futures LLC
Investors Dump Copper As Demand Stumbles By Ag Metal Miner – Jun 29, 2022, 1:00 PM CDT
Copper in 2022: Is it a Precious Metal Or Not?
Copper as a commodity has proven to be a reliable indicator of robust global economic health. So an 11% plunge that took the commodity metal price down to a 16-month low in a 2-week flash dump by investors this summer has the major copper mining players doubling down on copper’s future. Economists however are seeing the more ominous side of the copper price plunge, not to mention gold and silver prices under pressure.
Codelco is the state-owned copper mine in Chile, and they most certainly aren’t convinced of imminent doom. As the largest global producer of the metal, Codelco’s copper guidance from Chairman of the Board Maximo Pacheco confronted the short-term and hopefully temporary global supply chain kinks and China’s covid disruption issues in early June.
“We may be in temporary short-term turbulence, but what is important here are the fundamentals,” Pacheco said. “The supply-demand balance looks very favorable to those of us who have copper reserves.”
With a July 15 rebound from what was hopefully the copper bottom at the time of this writing, it appears that investors may have been listening to Codelco’s Pacheco, who quipped “The future is electric”.
Short-term turbulence in 2022 isn’t a signal of “ imminent doom” for the copper mining industry. The producers of one of the most efficient conduits in the world aren’t worried about demand for copper drying up, especially with green governments mandating a future of heavy copper use in renewable energy systems, including solar, thermal, hydro, and wind.
As energy prices spike around the world, green investments are still hot, and with that goes the inevitable upward demand for copper. But that still doesn’t change one very ominous fact. That is that falling copper prices are a historically accurate bellwether of inevitable recession.
Copper has entered a bear market preceding the past four recessions, so the 2022 plunge from pandemic-induced artificially high prices may be more than a natural correction as far as the larger global economy is concerned.
But copper isn’t the only metal under duress this turbulent summer of 2022.
Gold and Silver Under the Rate Hikes Hammer
“Regardless of the size of the rate hikes at the remaining four FOMC meetings, it is extremely likely that fed funds rates will have moved from 0 to 25 basis points before the March FOMC meeting to at least 3 ½% to three and three-quarter percent by the end of the year.”- Precious metals hammered as investors digest new aggressive rate hikes
According to not a few economy watchers, a perfect storm of record-breaking inflation, incremental interest rate hikes, and exorbitant energy and logistics costs means that gold and silver pricing will remain under pressure as the recession worsens.
The dollar will strengthen as the Fed moves interest rates incrementally higher. Savvy investors will tell you that there is a 100% negative relationship between the value of the dollar and gold prices.
The dollar is paired against gold, so an inversely proportional formula between dollar strength in gold weakness or dollar weakness in gold strength is as reliable as Newton’s Law that “Every action has an equal but opposite reaction”.
Rising interest rates strengthen the dollar by raising higher yields on government debt instruments. Metals can’t compete with that interest yield in a fixed-income asset market, so demand for high-yield bonds goes up while metal prices ring hollow.
So why is the Fed insisting on raising interest rates? Consumer Price Inflation in the U.S surged to another four-decade high, reaching 9.1% in June. That’s the largest annual CPI increase since November 1981 and well above economists’ optimistic estimates for an 8.8% increase.
With troublesome data like that the Fed is likely to justify its decision to forget about a half-point interest rate hike in favor of the first 75 basis-point increase since 1994. Leading Wall Street banks increased their rate hike expectations even further, in the race to hike rates “at any cost necessary”, as Phil Carr put it in his article, What’s Next For Precious Metal Prices As Inflation Alarms Get Louder?
In all, 60 central banks are “hiking rates aggressively” according to the FXEMPIRE report, with these banking leaders forecasting 100 basis-point rate hikes, up from previous calls at 75.
- Goldman Sachs
- Nomura
- JP Morgan
- Wells Fargo
- Bank of America
The Bank of Canada suddenly hiked rates by a full percentage point in response to fears that four-decade-high inflation is becoming entrenched. But a cloud for bankers can have a silver lining for precious metals investors.
The Traders Market is Here For Precious Metals
When metal prices dip as they have this year “endless opportunities to capitalize on the short-term macro-driven volatility “ abound. For the buy low and sell high metals player, settled prices are seen as an opportunity. Gold prices settle at their lowest since September
- Gold futures for August delivery fell $10.60, or 0.6%, to settle at $1,731.70 per ounce, the lowest finish for a most-active contract since Sept. 29, 2021.
- Silver futures for September delivery dipped 10 cents, or 0.5%, lower at $19.132 per ounce.
- Platinum futures for October delivery declined $22.10, or 2.5%, to $860.70 per ounce.
- Copper futures for September delivery lost 9 cents, or 2.6%, to $3.4305 per pound.
The question for metals investors now is, “ How low can they go as interest rates soar?”
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