Usually the price of gold rises and the price of copper follows the opposite path. The factor that determines the price of gold is the state of a country’s economy but also in today’s world economy. When the economy is in recession, the price of gold rises. In growth the price of gold is falling. On the other hand, the price of copper sinks when industrial and construction production declines and vice versa. Currently, both the price of gold and copper are moving together at unusual heights for their history.
The price of copper in June reached over $6000 a ton 30% increase since the beginning of the year; gold this month (27/07/2020) reached a record price of $1930.48 an ounce. Many believe that by the end of 2020 its price will exceed $2200 an ounce.
by Thanos S. Chonthrogiannis
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Why investing in gold?
When there is a global crisis and a fall in production activities then the world’s currencies lose even more in terms of real value and everyone turns to gold.
Gold is precious because it is the only metal that is not oxidized, i.e. it is preserved forever, unlike banknotes and the face value of money, which literally disappear into the “air”. Gold symbolizes real value while money symbolizes its liquidity and direct use.
Money, when it is literally produced from the “air”, is useful for those who invest first, but by the time it reaches the whole of society it has lost much of its value as the prices of goods rise.
Big problem has been created by the huge size of a $USD print. Gold is not inexhaustible, while the $USD can be printed seamlessly at an unabstracted pace making it an inflationary bomb.
Why is the price of gold rising today?
- The rise began with the start of the U.S.-China trade war.
- It continued with the drastic fall in interest rates in the US which reduced yields on 10-year inflation-indexed Treasury Bonds.
- The Covid-19 pandemic, which increased uncertainty in investment and expectations regarding corporate profits and the disorganization of giant economies such as the US. Gold magneted investments of $40bn for the first half of 2020.
- The USD was devalued, making gold cheaper for holders of other currencies to buy.
- Interest rates will continue to remain low.
- China is coming out strengthened by the pandemic, creating a flat euphoria for investors.
Why is the price of copper rising today?
- The price of copper sank in the first quarter of 2020, when the Covid-19 pandemic hit China, which is the main consumer, by 50%, of global copper production.
- The fact that China managed to recover in a noticeably short time from the Covid-19 pandemic, creating investment euphoria, pushed up the price of copper.
- The fact that the main copper producer is South America, the Covid-19 which spread to South America forced many governments, e.g. Peru, to close copper mines to safeguard the protection of its workers. This policy drastically reduced global supply in relation to increasing demand from China (Q22020) by increasing its price.
- Possible future worker-mine strikes could further limit copper supply with demand growing.
In addition, an even greater increase in its price is expected as many countries outside China such as the EU that have solemnly prepared the implementation of the “Agenda 2030 UN Sustainable Development Goals” with the shift of its economy to green transition and production respectively, to further increase copper demand because investment in electric grids and solar forms veined with the metal.
In addition, a further increase in the gold price is expected due to persistent high levels of government debt borne by the USD and its persistently low interest rates.
Those who so far invest in gold and copper have found their true El Dorado.
