China is dragging down the global commodities market in precious and other metals. The price of gold has fallen by 1.5% to $1,155 a troy ounce, the lowest it has been since March 2015, with silver also down almost 5%, and copper at its lowest price since 2009.
Over the last few months, the Chinese stock market has taken a major dive, dropping by almost 25%. More than 700 of the companies listed there, have stopped trading in their stock to avoid being wiped out.
This has caused fears among investors, that the world’s second-largest economy might have underlying troubles, and that it is significantly slowing down. In addition, China’s attempt to recover to bolster the market, by making it easier for some of its consumers to buy stocks on margin, is a warning sign and may be ill-advised.
With panic rising over the sudden fall, investors have started liquidating whatever they can, to pay back the loans for stocks acquired on the “margin”, hitting industrial focused shares and precious metals particularly hard.
While gold, silver, and copper have reached their lowest prices in months and in some cases years, the sell-off has also significantly impacted mining companies. Silver Wheaton’s stocks fell by 12% on July, 7, with Coeur Mining and Hecla Mining stocks down by around 8% each.
There are additional fears that stockpiles of industrial metals such as copper and iron ore, pledged as collateral against falling Chinese stocks, which could further exacerbate fall in commodities.
Stronger Dollar, More Expensive Metals
The Chinese crisis is not the only factor influencing the downturn in commodities. With Greece on the verge of collapse, the US dollar’s value has increased significantly, making dollar priced commodities more expensive to foreign buyers.
This has created a unique situation where gold sellers were not able to take advantage of the Euro crisis in Greece, creating a grey area where several key markets are unpopular at the moment.
Of course, this gives the opportunity for inventive speculators to make a killing.