Diverging metal prices highlight economic turmoil

gold-bars1The contrast between falling prices of industrial metals and the soaring value of precious metals such as gold underlines the troubled economic conditions facing investors this year.

Standard & Poor's (S&P) GSCI Industrial Metals Index is down nearly 8% since the beginning of the year, while the agency's precious metals index is up more than 23%. The agency calls the divergent performance “a disconcerting signal for economic prospects”.

As a whole, S&P's commodities indices have performed better than equities this year. The combined commodities index is down 1.5% while the S&P 500 has lost nearly 6% of its value, as of 11 August. Commodities that are less economically sensitive, such as agriculture and livestock, have been less affected by the recent stock market turmoil.

However, the rising demand for precious metals continues to unnerve the agency because it indicates investors are engaged in a flight to safety. When investors rush to buy gold, silver and other precious metals, it is because they do not trust the equity and bonds markets. This comes as sinking industrial metal prices indicate slowing growth.

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