Copper Shares the Same Fate as Gold in Broad Commodity Sell-Off — and the Reason Behind It Is Concerning

Metal prices plunged as fears of rising oil prices from the U.S.–Iran war weighed on the global economy
Metal prices fell sharply on Thursday as investors grew increasingly concerned that surging oil prices driven by the conflict between the United States and Iran would negatively impact the global economy.
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Gold prices dropped nearly 6%, while silver declined 8%. The sell-off extended beyond precious metals, with industrial metals such as copper and palladium also coming under pressure, falling 2% and 5.5%, respectively.

Although selling intensified on Thursday, gold and silver had already begun declining since the outbreak of the conflict in Iran, despite gold traditionally being viewed as a safe-haven asset. The sharp rise in oil prices has raised concerns that inflation could return and force interest rates to remain elevated. Higher interest rates reduce the attractiveness of physical bullion, which does not generate yield.

A stronger U.S. dollar, driven by higher interest rates, has also weighed on gold prices, as it makes the metal more expensive for buyers using other currencies.

“Inflation risks mean the market no longer expects the Federal Reserve to cut interest rates as previously anticipated, while global interest rates and real yields have moved higher — and that is what is dragging gold prices down,” said Peter Boockvar, Chief Investment Officer at One Point BFG Wealth Partners. At one point on Thursday, the yield on the 10-year U.S. Treasury exceeded 4.30%.

Meanwhile, copper and palladium, after initially declining at the onset of the conflict, had remained relatively stable.

However, this stability shifted as concerns about economic growth began to weigh more heavily on industrial metals.

Recession RisksIndustrial metals are widely used in real economic activity. For example, copper is found in numerous products ranging from electronic devices and electrical wiring to plumbing systems. A decline in copper prices is often viewed by financial markets as a signal that economic growth is slowing.

The prevailing view on Wall Street is that the longer the conflict persists, the greater the likelihood that oil prices will remain elevated for an extended period. This, in turn, could alter spending behavior among consumers and businesses and ultimately lead to an economic downturn.

This phase is commonly referred to as “demand destruction” — a typical consequence following an energy shock.

“On the industrial metals side, people are genuinely worried about recession risks right now,” Boockvar said.

Slowing growth combined with persistently high inflation is known as stagflation. While some investors have begun positioning for this scenario, others believe the probability remains low.

Ed Yardeni, President of Yardeni Research, wrote in a report on Tuesday:

“Oil shocks today are less likely to trigger prolonged stagflation than in the past, particularly compared with the 1970s,” referring to the economic fallout from the 1973 OPEC oil embargo.

He also noted that the conflict triggered by Russia’s invasion of Ukraine in 2022, while causing a surge in oil prices and higher inflation, did not result in a global recession.

This perspective was echoed by Federal Reserve Chair Jerome Powell during a press conference on Wednesday:

“I reserve the term stagflation for much more severe circumstances.”

While Boockvar believes the conflict needs to end before industrial metal prices can stabilize, he also expects gold prices to recover as markets refocus on rising public debt and widening fiscal deficits — factors that typically support gold as a hedge against currency debasement.

He added that these deficits could increase further due to military spending associated with the war.

Even if stagflation were to materialize, Christian Mueller-Glissmann, Head of Asset Allocation Research at Goldman Sachs, believes gold would remain an appropriate asset in such an environment.

“In the event of a sustained stagflation shock, particularly if real interest rates decline, we would expect gold prices to receive additional support from investor demand for real assets and currency diversification,” he wrote.