Gold inspires strong emotions from investors both for and against investing in the precious metal, and yesterday’s $130-per-ounce drop in the price of gold has reawakened the debate about whether gold is a smart investment.
Yet forgotten in the turmoil that hit gold yesterday was the fact that many other commodities also suffered big declines. On the heels of China’s slowing growth, the fact that many metals besides gold took substantial hits points to a more important trend that has greater implications for stock market investors and the global economy overall. Let’s take a look at some of the largely ignored commodities that saw devastating declines yesterday.
Copper prices didn’t fall nearly as much as gold, with near-month futures falling by around 2% yesterday. Yet the drop pushed copper to its lowest levels since late 2011, with the price having fallen by 14% just since early February.
China is responsible for about 40% of the world’s copper consumption, so a slowdown there bodes ill for world demand. But one key element with copper is the increase in supply, with major players Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) and Southern Copper Corp (NYSE:SCCO) among companies trying to spur production growth in the metal. With copper often acting as a barometer of overall industrial activity, its drop has far more troubling implications for views on global growth than gold’s crash.
Aluminum prices fell to three-and-a-half-year lows during trading in London yesterday. Yet unlike copper, which remains profitable for companies that produce it, aluminum has strained major producers’ profit margins for years now. According to one estimate, about a quarter of all aluminum companies around the world are losing money at current prices, and with further declines, that trend is likely to increase.
Alcoa Inc (NYSE:AA) has attempted to weather the storm by trying to think long-term, implementing strategies that assume an eventual recovery in the aluminum market. Yet the longer the current weakness lasts, the harder it will be for Alcoa to maintain its confidence in the future.
Among precious metals, silver often gets left out. But silver’s 11% decline yesterday to a two-and-a-half-year low was even more extreme than gold’s crash.
Silver serves a mixed role for investors. In some ways, it acts as a cheaper investment vehicle to gold for pure trading purposes. Yet silver also has industrial applications, including electronics, traditional photography, mirrors, and medical purposes. A lack of demand for silver therefore has deeper implications for the overall economy, and combined with the pressures that silver miners share with their gold counterparts in terms of cost, times could be tough for mining companies in the near future.
4. Platinum-group metals
Platinum and palladium both fell sharply, losing 5% and 6% of their value, respectively. Those losses weren’t as extreme as gold’s, but they nevertheless represented a drop to levels not seen since late last year. The two major miners producing the white metals, Stillwater Mining Company (NYSE:SWC) and North American Palladium Ltd (USA) (NYSEAMEX:PAL), both lost more than 10% on the day.