Gold to Copper Bulls Left Heartbroken as Price Collapse Deepens

  • Platinum futures decline in longest streak since 2002
  • Assets in global gold ETPs reach lowest in six years

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.”

Gold futures for December delivery fell 0.4 percent to settle at $1,081 an ounce on the Comex in New York, after touching $1,073, the lowest since February 2010. Copper futures slumped as much as 2.7 percent to $2.1585, the lowest since July 2009.

The Bloomberg Industrial Metals Subindex reached the lowest since March 2009 as aluminum, nickel and zinc also dropped. The gauge is down 26 percent this year, heading for a third straight annual slump and the worst streak since 1998. The Bloomberg gauge of precious metals also fell to a six-year low.

Shares Tumble

The price rout is taking a toll on mining companies. Glencore Plc dropped below a pound for the first time in a month Thursday as a six-day selloff in the stock accelerated. The company is the worst performer in the U.K.’s FTSE 100 Index with a 68 percent drop this year after the collapse in commodities. Anglo American Plc, the second-worst performer in the U.K.’s benchmark stock index, tumbled as much as 9.6 percent to the lowest since at least 1999. Freeport-McMoRan Inc. fell as much as 7.6 percent in New York trading. The Phoenix-based company has dropped 24 percent over five sessions, the biggest drop in the Standard & Poor’s 500 Index.

Over the past 12 months, major mine owners including Freeport and Vedanta Resources Plc have written down asset values by a combined $42.2 billion, 46 percent more than the previous period, data compiled by Bloomberg show. The adjustments reflect an across-the-board plunge in raw materials and the prospect of a prolonged slump.

There were fresh signs this week that government stimulus is doing little to stem the worst economic slowdown in a generation for China, the world’s top metals consumer. The nation accounts for about half of global copper demand and vies with India as the biggest bullion buyer. Goldman Sachs Group Inc. is among banks that have warned that commodity prices will stay lower for years, partly as slowing Chinese consumption leaves the world oversupplied.

Researcher CRU said Thursday that while the copper market will shift into a deficit next year, a stronger dollar will keep a lid on prices that could fall a further 15 percent in 2016. Higher rates, low inflation and selling from exchange-traded products will continue to pressure gold, analysts at Barclays Plc said Thursday, forecasting the metal would reach $1,030 by the end of next year. Assets in global bullion ETPs on Wednesday reached the lowest since 2009.

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