Gold and copper prices tumbled to their lowest levels in several months on Tuesday, as investors grew increasingly concerned about the prospect of aggressive interest rate hikes from central banks around the world.
Three-month copper futures fell 1.2% to $7,968.50 a metric ton, their lowest level since late May. Aluminum futures also fell 1% to $2,301 a ton, while gold futures fell 0.6% to $1,836.80 an ounce, their lowest level since March.
The sharp sell-off in metals prices was driven by a number of factors, including:
- Rising interest rates: Higher interest rates make it more expensive to borrow money and invest in assets such as commodities, which are often seen as riskier investments.
- Weaker economic growth: Concerns about a potential recession are also weighing on metals prices, as weaker economic growth would lead to lower demand for industrial metals such as copper.
- Stronger dollar: The US dollar has been strengthening in recent weeks, which makes dollar-denominated commodities such as gold and copper more expensive for buyers using other currencies.
Analysts at Peak Trading Research said that the prospect of more rate hikes from the Federal Reserve and other central banks is “a headwind for dollar-backed commodities.”
“Interest rates continue to climb higher and bond markets are pricing even odds that we’ll get another Fed hike this year,” the firm said in a note. “This supports the strong US dollar and makes dollar-denominated commodities less attractive to buyers using other currencies.”
The sharp sell-off in metals prices could have a number of implications for the global economy. For example, a weaker copper price could lead to higher costs for construction and manufacturing, which could dampen economic growth. A weaker gold price could also make it more difficult for central banks to manage inflation.
It remains to be seen how long the sell-off in metals prices will last. However, analysts say that investors should be prepared for further volatility in the coming months as central banks continue to tighten monetary policy.