With the uncertain economy, prices for metals like gold and copper are falling : The Indicator from Planet Money When in doubt, count on the price of metals like copper and gold to predict the economy. But what magical forces are driving prices in the metal market down?

The alchemy behind falling metal prices

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And I'm Adrian Ma. The global economy is kind of discombobulated right now. Inflation is rampant, growth is flatlining and economists are forecasting gloom and doom for the foreseeable future.

HIRSCH: Yeah. And because of this, we're seeing what finance people like to call a flight to quality.

MA: Can I just say a flight to quality sounds a lot better than freaking out and running for the hills?

HIRSCH: Yes, you're absolutely right. It's jargon for people buying super safe investments - things like U.S. Treasury bonds, U.S. dollars and, usually the longest-running safe haven of all, gold.

MA: It is often touted as a hedge against inflation, so it's what you buy to make sure that the value of your money doesn't erode as quickly as prices rise. So with inflation at 9.5%, what you would expect is for gold prices to be, like, punching through the roof right now, but they're not.

HIRSCH: They are not. In fact, since March, gold has been in freefall. I've got a gold price chart on my desktop. It looks like one of those really dangerous ski runs that you see in those crazy TikTok videos. And the rest of the metals market looks the same - silver, copper, aluminum, aluminium - however you pronounce it. All the metals are taking a dive.

MA: Yeah. It's like someone cast a spell on the metals market. So on today's show, we're going to look at the mayhem in metals and ask what the antidote might be.


HIRSCH: The metals market falls into two parts - precious metals and base metals. Precious metals are rare, expensive commodities that are used as investments and also to make parts for high-end industrial applications. Gold, silver and platinum are the big ones, but also metals like palladium, which is used in catalytic converters, and iridium, which is used in computer screens.

MA: Base metals, on the other hand, are a lot more common and therefore a lot cheaper, right? And that is because they are comparatively easy to find and mine and produce. So base metals are things like copper, nickel, aluminum-in-in-um (ph).

HIRSCH: Aluminium.

MA: Alumin-in-inium (ph). And lead, zinc and tin are biggies too.

HIRSCH: And in normal times, all of these metals behave differently on the trading markets. And quite often, precious metals that are used for investment, like gold, will move in the opposite direction to base metals used for industrial applications, like copper.

MA: Kind of like a seesaw - if the global economy is doing well, copper rises because it's used to build and make things, but gold falls because it's often used as a safe haven. And you don't need a haven when things are going well. When the economy's doing badly, on the other hand, you often see the seesaw flip the other way. Gold rises, and copper falls.

HIRSCH: Right now, though, something very weird is happening. Copper and gold are both falling. Copper is down 26% since the beginning of the year. Gold is down 16% since March. And most metals, both precious and base, are falling with them. Tai Wong is an alchemist, and he says that the problem with...

MA: Whoa, whoa, whoa, hold on - Tai is not an alchemist. Like, he doesn't turn base metals into gold.

HIRSCH: Ah, OK, OK. Well, maybe not gold, but he certainly turns them into money.

MA: Ah, OK.

HIRSCH: Yes. OK? Right?

MA: Right. Right.

HIRSCH: He's the guy who trades metals and metal futures for his clients, which means that he's spent the last 20 years buying and selling everything from gold and silver to nickel and tin. And he says the volatility that we're seeing in the metals market right now reminds him of 2011, when the stimulus from the Great Recession began to peter out.

TAI WONG: Copper was quite high - in the 8,000s. And it started to dramatically fall, from eight, nine thousand down to the, you know, 4,000-ish level.

MA: And gold - it did something similar. It peaked in August of that year, and then it slid 15% over the rest of the year. Back then, the fear was that the U.S. economy would slip into recession, and the global economy would go with it. And Tai says the same fear is affecting the metals market today.

HIRSCH: There are really three things driving those worries, Tai says - that's the dollar, it's inflation and it's China. And these three factors are like Macbeth's witches, standing around their cauldron, melting everything down and casting really wicked spells on the metals market.

MA: (Laughter) Alchemist witches? You're, like, on a Shakespearean kick right now. OK, I'll play along. The spell being cast by the first witch is China. Tai says China is a vitally important market for metals, and he uses copper as an example.

WONG: China uses - probably uses 50% of the world's copper in one way or another. So if China has a cold, the copper market could catch pneumonia. So concerns about China growth, concerns certainly about China building - that's been pretty bad for copper, which has dragged down other base metals.

HIRSCH: But now the country's economy is moving really sluggishly. Manufacturing activity is actually shrinking, not growing, and consumer spending and the property market are pretty subdued.

MA: And here is the thing - China doesn't just buy copper; it buys all the metals. So as China's economy slows, demand for all the metals falls - both precious metals and base metals. China's slowdown is acting like one of "Harry Potter's" spells - Flipendo (ph)...

HIRSCH: Flipendo.

MA: ...Knocking the market backwards.

HIRSCH: It's pretty nasty, but it's nothing compared to the spell cast by the second witch, and that spell is the dollar, which right now is the strongest it's been in a generation. It's great if you want to fly on your broomstick to Europe; not so good for metals, Tai says.

WONG: Since most commodities - almost all commodities, including gold, including oil - are priced in dollars, a stronger dollar has the effect of pushing those commodities down.

MA: What Tai is saying is, if you live and run your business in the U.S., metals are getting cheaper for you because metals are priced in dollars. But if you're outside the U.S. and you have to buy dollars to buy the metals you need, those metals become more expensive, too.

HIRSCH: And of course, what happens when something gets more expensive? People tend to buy less of it. The strong dollar, in other words, has an effect on the metals market a bit like the "Harry Potter" spell Impedimenta (ph).

MA: (Laughter).

HIRSCH: It trips you up and can make you fall flat on your face, in case you didn't know.

MA: Painful.

HIRSCH: Yes, but it's nothing compared to the effects of the spell wielded by the third of our witches - the Avada Kedavra (ph), the killing spell - inflation. As we all know, the cost of everything - from food to fuel to cars to housing - is rising.

MA: And that creates a really bad feedback loop for metals because it makes it more expensive to produce things that use metals in their components, and that suppresses demand for metals even more.

HIRSCH: There's an antidote for inflation, of course - hiking interest rates. But the wicked thing about this Avada Kedavra spell is that the antidote can actually make things worse for metals.

MA: Rising interest rates, of course, makes borrowing more expensive. And here's the thing. A lot of people who trade metals, like Tai does - they do it on margin, and that basically means that they are trading with borrowed money.

HIRSCH: Yeah. So Tai says, as interest rates have risen and borrowing has gotten more expensive, so demand for metals has slid even more.

MA: Tai says this combination of a strong dollar plus rising interest rates plus a sluggish Chinese economy means we are likely to see a lot more ups and downs in the metal market - and most likely more downs than ups.

HIRSCH: That's kind of a nightmare for most of us because we use the metals market as an indicator for what might happen with the global economy. Traders like Tai, on the other hand, see all that volatility in the metals market quite differently. They actually kind of like it.

WONG: It is certainly exciting. The truth of the matter is, for most traders in the market, you do want volatility because volatility means opportunity. That can be stressful. But as with many things in life, you do get used to it.

MA: (Laughter) You get used to it - or numb may be another way to put it. I don't know. But, you know, Tai's been trading metals for 20 years, so he has seen a lot. He doesn't believe in spells or magic, but he says that he would not be surprised if the market turned around relatively fast. And that is even though there are worries about the state of the global economy.

WONG: The concern is real. The concern is warranted, but sentiment could swing rapidly. If China improves a little bit, if Russia does turn back on the gas, rates - rate expectations go lower. The dollar goes lower. That helps metals. So these markets can mean revert relatively quickly.

HIRSCH: And in the meantime, Tai says, all a trader can really do is strap in and keep informed about what's going on in the hope that there's not going to be any witchy surprises. After all, there's no spell to counteract volatility. And when it comes to straightening out the economy, none of us has a magic wand.


MA: This episode of THE INDICATOR was produced by Corey Bridges and our senior producer, Viet Le, with engineering help from Gilly Moon. It was fact-checked by Kathryn Yang. The show was edited by Kate Concannon, and THE INDICATOR is a production of NPR.


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