Miners reel as gold and copper prices tumble, pointing to a global slowdown amid Middle East war
Base and precious metals have tumbled since the Middle East war started as investors sold to move into cash on worries about global growth.
Gold and base metals including copper extended a three-week slump on Friday as traders dump them on worries the inflationary impacts of the Middle East war will hurt global growth.
The sell-off in gold to $US4651 an ounce on Friday took the $US32 trillion ($45.2 trillion) precious metal’s fall to more than 10 per cent since the war’s start on February 27.
“So gold’s been hit by a double whammy, interest rates and expectations are rising so gold is falling as it pays no yield,” said Justin Lin an Investment Strategist at Global X.
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By continuing you agree to our Terms and Privacy Policy.“US investors are also positioned for a soon end to the war, they expect a TACO (ceasefire) from President Trump and are selling gold to buy the dip on equities.”
Gold’s fall on Friday extended a horror one-month run for the ASX’s largest miners. Newmont Mining is now down 15 per cent since the Iran war erupted, with West Australian pair Northern Star and Evolution crashing around 34 per cent and 20 per cent respectively.
Mr Lin added that Asian investors are still heavy net buyers of gold as widening enmity between the US and countries allied to Russia and China fuels a flight into the metal as an US dollar alternative.
“There’s also been a lot of speculation in gold,” he said. “In early February, prices hit $US5500 an ounce, so there’s bound to be profit taking as the environment back then is very different to today.”
Silver prices have also crashed nearly 20 per cent since the Iran war to $US71.50 an ounce on Friday. However, they’ve still doubled over the past 12 months characterised by a mania for exposure to the metal among retail investors in particular.
“Rising energy costs and inflationary pressures prompted investors to shift into the US dollar and US treasuries (bonds), weighing on safe-haven metals,” said Trading Economics on Friday.
“Markets have also pushed back US Federal Reserve (interest) rate easing expectations to 2027 and are pricing two cuts each from the European Central Bank and Bank of England this year, further dampening precious metals appeal.”
Copper sinks, food inflation warning
Copper has also dropped about 5 per cent since the start of the war to US5.50 a pound.
The world’s third most widely-used metal, also known as Dr Copper given demand for it, is considered a proxy for global economic growth that’s expected to slow on the three-week Middle East war.
The fall in copper prices has sent shares in $241 billion miner BHP Group down 11 per cent from $53.33 a month ago to $47.55 on Friday.
Other ASX copper plays including South32 and Rio Tinto are down around 10 per cent since the war’s outbreak.
On Friday the broader S&P/ASX Materials sector lost 1.6 per cent to take its one-month fall to 13 per cent, versus a 16.6 per cent gain for the S&P/ASX Energy sector dominated by oil, gas and coal miners.
“Copper is very industrial and a bellwether for economic activity,” said Mr Lin. “So, global sentiment is not good as investors are looking at the war in Iran and seeing no off-ramp right now, that means higher inflation and lower growth.”
The analyst warned that he expects more price inflation to hit foodstuffs over the next month as the closure of the Strait of Hormuz stops the transport of natural gasses required to produce synthetic fertilisers.
“Up to to 50 per cent of the world relies on fertilisers to grow grains, wheats, oil seeds,” he said. “And with prices heading higher we could see inflation into these foodstuffs over the next few months and potentially much longer.”
