Industrial metal prices have registered a slight recovery amid a cooling in the dollar’s rally. The greenback has been on quite a roll for the past few weeks, achieving historic highs with the dollar rally sending ripples through financial markets across the world. Surging dollar prices had a dampening effect on the commodities market, unfortunately, with commodities such as precious and industrial metals, including gold, dropping by 1% to trade at $1,709 an ounce as the dollar hit a new decade high in value.
However, a slowdown in the greenback’s rally eased the cost pressure of dollar-priced commodities and allowed industrial metals to recoup some losses. Despite this, market factors may cause further disruptions in metal prices.
Efforts by the U.S. Federal Reserve and central banks around the globe to fight inflation by adopting increasingly hawkish policies have significantly increased fears of recession. This could dampen demand for industrial metals such as copper and cause their prices to fall.
On the other hand, precious metals such as gold have long been regarded as stores of value, especially during economic downturns such as the ones we are currently experiencing. The dollar, despite being a national currency, is also seen as a strong store of value. It has immense purchasing power and essentially runs the global financial market. Even as global central banks tighten their monetary policies and stoke fears of economic recession, investor appetite for the greenback will most likely remain.
TD Securities commodity strategist Ryan Mckay stated that the outlook for metals, especially base metals including aluminum, copper, tin, nickel and lead, isn’t good. He added that gold prices would certainly falter under an increasingly hawkish Fed and higher benchmark interest rates. McKay also mentioned that base metals seemed to be losing supply side support and were quite vulnerable to deteriorating demand conditions.
Metal prices at the London Metal Exchange have been mixed, with aluminum prices decreasing by 0.2% after slipping by 2.1% earlier and copper going up by 0.5% after faltering by 1.9% earlier. Gold bullion saw its prices stabilize after reaching its lowest in two years.
Gold’s status as a store of value should have made it an extremely hot commodity in the current economic atmosphere, but the metal has been impacted by the dollar’s relentless rally coupled with hawkish moves by central banks worldwide.
Currently in a bear market, gold bullion is now trading at 20% below its record-high prices from 2020 and is backed by consistent outflows from gold exchange-traded funds. It remains to be seen how long the downturn will last before companies such as Newmont Corporation (NYSE: NEM) (TSX: NGT) can again ramp up their production of the precious metal.
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