Copper Prices Slump on Weak Chinese Factory Data, Gold Holds Steady

By Ambar Warrick

Investing.com -- Copper prices sank on Monday after weak Chinese factory data pointed to slowing demand for the metal, while gold prices steadied around three-week highs.

As of 09:13 pm ET (0113 GMT), Copper futures fell 1.2% to $3.5503 a pound- near their lowest level in over one year.

Chinese factory output unexpectedly shrank in July as fresh curbs in the wake of rising COVID-19 cases dented economic activity. The official purchasing managers index (PMI) came in at 49 for July, below expectations of 50.4, and June’s reading of 50.2.

While the country’s overall business activity still remains in expansion territory, a drop in manufacturing bodes poorly for its import of commodities. Chinese demand accounts for a sizable portion of the global iron ore and base metals market. Oil prices also sank in reaction to the data.

A potential crisis in China’s debt-saddled real estate market also points to more pressure on copper and iron ore prices this year, given their widespread use in the sector.

While metal prices had gained substantially this year on supply shocks from the Russia-Ukraine conflict, they have since consolidated sharply amid rising inflation and interest rates across the globe.

This, coupled with a potential economic recession, is also expected to damage metal demand through the remainder of the year. The U.S. economy shrank for two consecutive quarters this year, while the European Central Bank recently flagged a recession risk in 2022.

Amid an increasingly dire economic outlook, gold futures prices held steady after rising to a more-than-three-week high last week. Spot gold traded at $1,763.64 an ounce on Monday, down marginally from its previous close.

Other precious metals were also steady. platinum traded at $889.90, while silver futures were largely unchanged at $20.145. Still, the space is largely expected to come under pressure as U.S. interest rates rise further in 2022.

The Federal Reserve hiked rates by 75 basis points last week, and said that more raises were likely in the face of sky-high inflation.