US capex helps spark copper boom, while cautious China helps lift gold prices
May 22, 2024
Key Observations:
No one has asked us about the copper/gold ratio for months. Likewise we see few inbound inquiries about recession risk, and economic growth remains in a Normal regime. These facts underscore the message in the chart at right: over the past month, spot copper prices have meaningfully outperformed spot gold prices for the first time in almost a year.
Real economic activity is outpacing safe havens. But this relative strength does not mean global growth is strong absolutely or equally distributed. Nor that demand for safe havens is weak.
To the contrary, copper and gold prices have both boomed since mid February, emphasizing that activity and caution are simultaneously advancing. Over the past three months, prompt copper prices have risen by more than 30% while prompt gold prices have risen by more than 20%.
Investors are accustomed to looking toward China for copper demand growth. This was the playbook in the 2003-08 cycle. But China and the U.S. have traded places for the cycle newly begun. China is now a mature and slower-growing copper user, while the U.S. is a dynamic first mover. Last week U.S. copper-intensive capex for electrification helped drive the CMX curve into backwardation.
Meanwhile, China’s robust physical demand for gold as a store of value and hedge against a raft of potential adverse scenarios means Shanghai, not London or NYC, is today’s spearhead for gold’s upward price momentum.
Source: Bloomberg, CMX, LME, SGE, Blacklight Research.
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