The late, great Yogi Berra, in addition to winning 10 World Series with the New York Yankees, was the creator of numerous classic malapropisms, including, “You can observe a lot by just watching.” In that spirit, we turn to two of the world’s most important metals: one precious (gold) and one industrial (copper), and what we might observe about the outlook for the world’s economy by watching their recent performance. At the risk of oversimplifying things, gold, as the ultimate store of value, should do well during periods of economic and political uncertainty, and when interest rates are low and expected to fall further. Since gold doesn’t have a yield, a low yield environment flatters the metal. Copper, as its designed into everything from trucks to trains, should do well when aggregate demand for finished goods is growing and the outlook for the economy is improving. As copper is priced in US dollars, its price rises as the US dollar goes down, and a declining US dollar, on balance, is a tailwind for global growth. Lately, gold has been on the back foot, selling off about 10% from its recent all-time high, while copper has been on the front foot, trading at its highest level in almost eight years. The surge in copper and other industrial metals makes sense, as manufacturing activity (think factories making stuff) is outpacing service activity (think people going out to eat), and China, which is a voracious consumer of copper, is leading the global economic rebound. While we should never get too caught up in short-term performance, we think the relative returns of the two metals reflect the belief among many investors that COVID-19 vaccines and ongoing stimulus programs will lead to greater economic growth and manufacturing activity in 2021. We think that thinking is spot on.
Tagged: weekly wire, market perspectives, Tim Holland, stimulus package, COVID-19, gold, copper