The higher-for-longer narrative reentered capital markets after January revealed hotter-than-expected inflation. This strengthened the dollar, pushing metals like gold and copper lower, but opened the door for investors to buy the dip.
The latest consumer price index (CPI) numbers “showed that U.S. inflation grew more than expected in January, giving credence to recent warnings from the Fed that sticky inflation will keep the bank from cutting interest rates,” as reported by Investing.com. As such, traders scaled back their bets on rate cuts in the months of May and June as a data-dependent Federal Reserve sought more confirmation that inflation numbers are cooling. Of course, this wasn’t what rate cut bettors were hoping for.
For bullish gold investors, the “prospect of higher-for-longer rates bodes poorly for gold, given that higher rates push up the opportunity cost of investing in the yellow metal,” the report said. Gold pushed past the $2,000 per ounce mark, but January’s CPI quickly quashed that rally.
Likewise, copper prices retreated on a stronger dollar. and the expectation of higher-for-longer interest rates is tamping down demand. But supply concerns also factored into further price pressure. China’s increased demand for copper could help buoy prices in the interim, but the second-largest economy is still working through economic growth concerns.
“Copper prices were also still reeling from the discovery of a massive deposit in Zambia, which is expected to eventually increase global supply,” Investing.com added.
Buying the Pullback
With the unexpected inflation number for January, pullbacks in gold and copper could present an ideal buying opportunity for investors looking to diversify their portfolios with gold. Likewise, that diversification also extends to an industrial metal like copper.
For gold prices specifically, the Sprott Physical Gold Trust (PHYS) offers a compelling option. The fund provides an enhanced physical bullion structure, and offers the ease of purchase and sale that comes with being traded on a stock market exchange. Shares are redeemable for the precious metal bullion if the investor wants the feel of a more tangible investment.
For copper, Sprott offers a play on miners, which can benefit when the metal witnesses higher demand. For this, investors can use the Sprott Junior Copper Miners ETF (COPJ). The fund seeks to provide investment results that track the total return performance of the Nasdaq Sprott Junior Copper Miners Index. The index incorporates mid-, small-, and micro-cap companies entrenched in copper-mining-related businesses, offering a diverse array of exposure to various market capitalizations.
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