Amidst drastic market volatility, gold and copper, as two major commodities, not merely unaffected but exhibited strong performance in 2024. While the gold price retraced after hitting historical highs, its upward trend persisted, mirroring a similar trajectory for copper. However, the underlying rationales behind the surge in copper and gold are starkly different, highlighting macro trends that are of greater interest to investors.
Throughout human history, gold has been a reliable store of value and one of the earliest forms of currency, particularly shining during times of unrest and uncertainty. The current elevated gold prices near historical peaks underscore its enduring allure.
Irrespective of price fluctuations, there is no shortage of buyers for gold today. Central banks worldwide, especially those in emerging markets, continue to flock towards gold. The latest data from the World Gold Council (WGC) revealed a 3% year-on-year increase in global gold demand in the first quarter, totaling 1,238 tons (including off-exchange transactions), with global official gold reserves growing by 290 tons. These figures emphasize a strategic shift towards de-dollarization and gold as a reserve currency.
Unlike gold’s safe-haven appeal, the surge in copper prices is largely driven by its role as industrial metal.
Known as “Doctor Copper,” copper has the capability to forecast economic trends accurately. Thanks to robust global economic growth, especially surging demand from technologies such as electric vehicles, wind and solar energy, copper prices have climbed to a two-year high. Moreover, with both Chinese and American manufacturing PMIs still in expansion territory, it is challenging to deter the bullish sentiment in copper as bulls remain reluctant to exit willingly.
According to the International Copper Association’s (ICA) projections, copper demand is set to increase from 28.3 million tons in 2020 to 40.9 million tons by 2040, representing a compound annual growth rate of 1.85%. While demand is on the rise, the global copper market’s supply side continues to tighten. Various unfavorable factors, such as production halts by large South American producers and a sustained decline in ore grades, are expected to constrain supply growth this year.
The transition to a low-carbon economy and clean energy offers greater potential for copper.
A report by BloombergNEF highlighted that global energy transition investments reached a staggering $1.8 trillion in 2023, almost double the amount in 2020. These investments, especially in regions like Europe, the Middle East, and Africa (EMEA), are anticipated to further drive copper demand. Compared to fossil fuels, clean energy requires significantly more mineral consumption, with copper playing an essential role in the electrification and renewable energy infrastructure.
