Does Federal Reserve Policy Impact Copper Prices, Too?

Tuesday, May 24, 2016

It’s not difficult to see how Federal Reserve policy impacts gold prices. Investors, who are wary of low interest rates, and even the possibility of negative interest rates, tend to flock to gold. In addition, the price of gold is in US dollars, and Federal Reserve policies tend to impact the dollar as much as any other factor out there.

But what about when it comes to copper? Like gold, copper is an important metal that is priced in dollars. Just because it’s an industrial metal, rather than a precious metal - doesn’t mean that copper investors shouldn’t be interested in what the Federal Reserve might have to say about the state of the economy.

As we saw recently, copper is heading down to recent lows. As the Daily Mail (UK) notes, the fears of a rate hike in June really do impact the price of the industrial metal—just as much as the fears of a rate hike impact gold, which has recently seen a modest drop of its own.

Let’s take a look at the variables impacting copper prices to make sense of all of this, and let’s start with some recent comments by people near the Federal Reserve.

Federal Reserve (Boston) Head: A Rate Increase May Come Soon

Fortune quotes Eric Rosengren, head of the Federal Reserve Bank of Boston, as telling the Financial Times that the conditions are pretty much met for a Federal Reserve interest rate increase come June, the next time such an increase would take place.

“I want to be sensitive to how the data comes in, but I would say that most of the conditions that were laid out in the minutes, as of right now, seem to be … on the verge of broadly being met,” said Rosengren.

The impact of this statement should not be underestimated. Both gold and copper started sluggishly recently, with copper hitting near three-month lows. This suggests that, not only is copper - somewhat dependent on the dollar for its value in the markets, but it is actually strongly linked.

The Prospects for 2016 Prices

Is copper going to remain stagnant this year? A rate hike being in the cards suggests that it may. Recent news like Indonesia renewing Newmont Copper’s export license for six months might be helpful, but are ultimately just blips on the radar. The real place to look for regarding copper supply and demand tends to be China, with its growing industrial base. Demand for the industrial metal is largely dependent on some new industry being created, and if China isn’t showing enough demand to help copper out of its dollar-induced stupor, we may see stagnant copper prices for the remainder of the year.

The Daily Mail quotes a Chinese trader as saying China has had a poor year for copper. With stock prices high, there’s no buying interest in copper, which means that demand isn’t what it could be. It may take a while before the economic engines that drive copper demand start again in earnest.

Darren Capriotti

Darren Capriotti has been a market analyst for the past decade and is an expert in precious metals. He prides himself on his ability to analyze the market and offer true value to investors with questions about gold, silver, and other precious metals. Highly educated, incredibly passionate, and more accurate than most, Darren offers a true, unbiased look into what investors can expect in the precious metals market. You can reach Darren at