The EconomistJuly 25th 2020 Finance & economics 57T
here is, supposedly,a neat choreogra-
phy to copper and gold prices. When
one rises, the other tends to fall. In an eco-
nomic downturn, for instance, gold climbs
as investors seek a haven. Copper prices
dip as manufacturing and construction
slow. But these are unusual times, and gold
and copper are moving in unusual ways.
Rather than continue their customary do-
si-do, they are leaping upwards together.
The price of copper surpassed $6,000 a
tonne in June, up about 30% since the
depths of March. Gold this month topped
$1,800 an ounce, approaching a record
reached in 2011. Many analysts reckon it
may exceed $2,000 this year or next. As the
world continues to reel from covid-19, the
economic outlook is uncertain and the re-
covery uneven from one country to the
next. For those betting on gold and copper,
this has proved a winning formula.
Gold started its recent climb from an al-
ready lofty perch. The ascent began at the
end of 2018, as a trade war between America
and China clouded the prospects for eco-
nomic growth. Sinking interest rates in
America lowered the yield on ten-year
inflation-indexed Treasury bonds, making
gold shine brighter. From November 2018
to late 2019 the price of the yellow metal
jumped by about 25%, to $1,515.
Now covid-19 is propelling gold to even
more vertiginous heights. Investors are
scrambling for security, fearing a pro-
longed downturn as the virus continues to
ravage giant economies such as America
and Brazil. Gold-backed exchange-traded
funds attracted $40bn in the first half of
the year, a record. The dollar has weakened,
making it cheaper for holders of other cur-
rencies to buy gold. Rates remain low. Je-
rome Powell, the chairman of the Federal
Reserve, said in June that he was not even
“thinking about thinking about” raising
them. China, hit first by the virus, is recov-
ering first, too, offering further upside. It is
gold’s biggest retail market, and more
shopping there would lift prices higher.
Copper’s rise this year may be evenmore striking. Its price sank by more than a
quarter from January to mid-March when
covid-19 spread across China, which ac-
counts for about half of the red metal’s con-
sumption. Now, however, efforts to stimu-
late China’s economy are spurring
investment. In June a tracker of sector-lev-
el demand for copper in China used by Citi-
group, a bank, rose by 5.5% on the year, its
biggest jump in over two years.
As China invests to recover from the
pandemic, though, the Americas are still
grappling with it, explains Jeff Currie of
Goldman Sachs, a bank. Because copper
production is concentrated in South Amer-
ica, that has constrained supply. Some
mines in Peru, shut because of the virus,
are only slowly resuming production,
points out Susan Bates of Morgan Stanley,
another bank. In Chile, where mines have
been operating with reduced staff, the de-
ferral of needed maintenance may restrict
supply in the months to come. And miners
may strike, further threatening output.
It is unclear how long copper prices can
be sustained by investment in one place
and infection in another. The metal’s tradi-
tional engine—strong global economic
growth—is sputtering. Continued infec-
tions in America or a resurgence of the vi-
rus elsewhere could further depress de-
mand for appliances, cars and other
copper-dependent goods.
That said, on July 21st European leaders
agreed to new stimulus; and demand for
copper may rise as countries outside China
invest in electric grids and solar farms
veined with the metal. Gold’s rally may be
even more persistent, argues Mr Currie,
supported by factors that linger through
the 2020s: high debt levels that weigh on
the dollar, and low interest rates. The jour-
ney skyward may not be over yet. 7NEW YORK
An odd recovery means that copper
and gold prices are both rising
Metals
Shining brightly
Red metal, red-hot pricesSwarming to market
Initial public offerings*Source:Refinitiv *PrimarylistingsonlyNew YorkShanghai
main boardNasdaqSTARHong Kong1501209060300Number of issues2019 2020,toJuly20thNew YorkShanghai
main boardNasdaqSTARHong Kong0 10 20 30Proceeds, $bnOn July 20th Ant Group, the financial-services arm of Alibaba, an e-commerce giant,
announced its plans to list on the starmarket, the Shanghai stockmarket’s
technology-focused board, and in Hong Kong. The offering could be huge—the firm was
valued at $150bn in 2018. Ant would become the latest in a trail of listings on both
venues this year, where the number of ipos has rivalled those on America’s Nasdaq.
Much Ant-icipated