Metal markets took a pounding on Thursday, sending gold to a five-year low and copper to the cheapest since 2009. Falling prices are dragging down producer shares, pushing the Bloomberg World Mining Index to a five-week low.
Investors are fleeing — withdrawing more than a $1 billion from exchange-traded funds tracking industrial and precious metals just this month, data compiled by Bloomberg show. Platinum dropped Thursday in the worst losing streak since 2002, while silver posted its longest slump since March 2014.
While China’s slowing growth has pressured prices, the country’s not all to blame for an acceleration of the metals meltdown. The latest catalyst for the collapse is the rapid shift in investors expectations for higher U.S. interest rates.
Traders are pricing in a 66 percent chance that Federal Reserve officials will start tightening monetary policy next month, up from 39 percent a month earlier. Higher rates make metals less competitive against assets that pay interest or offer dividends, while also boosting the dollar and cutting the appeal of raw materials as alternatives.
“The new-found weakness is about the massive quick changes we’ve had in the probability of Fed tightening,” said Jim Paulsen, who helps oversee $345 billion as chief investment strategist at Wells Capital Management in San Francisco.
“It directly affects competitive returns. Higher rates also raise the probability of slower growth and a stronger dollar, which are negative for commodities. We’ve got a very weak global-growth scene now, which is magnifying the negative impact.”
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