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Metals gold and copper proving to be very reliable barometers of economic stability
Forget oil. If you want to know how the world economy is faring, just look at two metals: gold and copper. They are usually discovered and mined in the same places, but the yellow and rusty red metals are going in opposite directions price-wise despite an overall slump in commodities — especially this year.
The price of copper — critical in manufacturing and construction — has fallen 10 per cent in 2015 as global growth stalls, while ‘safe haven’ gold has enjoyed a double-digit bounce this month as market and geopolitical volatility continues.
“Just when everyone gave up on gold, turns out the obituaries were premature,” says gold bug John Ing, president of Maison Placements Canada.
In fact gold has amazingly emerged as the top performer of 2015, not just among metals but also compared to stock markets and currencies, he notes. That is largely due to bullion’s traditional role as a fear magnet which investors tend to latch onto when everything else is rocky – and it is lately, from the tanking oil price to topsy-turvy stock markets.
This year, gold has climbed 11 per cent and is enjoying its best start to any year since 1980. In 2014, gold fell 1.5 per cent as equities surged and an improving U.S. economy cut demand for haven assets. In 2013, the metal tumbled 28 percent, the most in more than three decades, ending a spectacular 13-year bull run.
On Thursday, gold soared to its highest level in five months, and is finally trading just above the psychological $1,300 (U.S.) an ounce level, after the European Central Bank announced a massive stimulus program to combat ultralow inflation in a region considered the top risk to the global economic recovery.
The jump in gold is “certainly substantial”, particularly in a matter of weeks, said George Davis, managing director and chief technical analyst, fixed income and currency strategy, at RBC Capital Markets.
“Gold tends to benefit in times of unrest and turmoil. The whole sell-off bottomed out at $1,130 to $1,140 per ounce, which is around break-even levels for producers, and that created a floor. Now equity markets are under pressure, which is helping to underpin gold,” he explains.
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