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What's driving prices down in the metals market?

JUANA SUMMERS, HOST:

The global economy is kind of discombobulated right now. And because of this, we're seeing what finance people like to call a flight to quality. It's jargon for people buying super-safe investments like gold. But since March, even gold has been in free fall, along with the rest of the metals market. The Indicator's Paddy Hirsch and Adrian Ma report.

ADRIAN MA, BYLINE: If the global economy is doing well, copper rises because it's used to build and make things, but gold falls because it's often used as a safe haven, and you don't need a haven when things are going well. When the economy is doing badly, on the other hand, you often see the seesaw flipped the other way.

PADDY HIRSCH, BYLINE: Right now, though, something very weird is happening. Copper and gold are both falling, and most metals are falling with them. Tai Wong has spent the last 20 years buying and selling everything from gold and silver to nickel and tin. And he says the volatility that we're seeing in the metals market right now reminds him of 2011, when the stimulus from the Great Recession began to peter out.

TAI WONG: Copper was quite high - in the 8,000s - and it started to dramatically fall.

MA: Back then, the fear was that the U.S. economy would slip into recession and the global economy would go with it. And Tai says the same fear is affecting the metals market today.

HIRSCH: There are really three things driving those worries, Tai says. That's the dollar; it's inflation, and it's China. And these three factors are like Macbeth's witches, casting really wicked spells on the metals market.

MA: The spell being cast by the first witch is China.

WONG: China uses - probably uses 50% of the world's copper in one way or another. So if China has a cold, the copper market could catch pneumonia.

MA: And China doesn't just buy copper. It buys all the metals. So as China's economy slows, demand for all the metals falls. China's slowdown is acting like one of Harry Potter's spells - Flipendo (ph) - knocking the market backwards.

HIRSCH: But it's nothing compared to the spell cast by the second witch. And that spell is the dollar, which right now is the strongest it's been in a generation.

WONG: Since most commodities, almost all commodities, including gold, including oil, are priced in dollars, a stronger dollar has the effect of pushing those commodities down.

MA: What Tai's saying is, if you're outside the U.S. and you have to buy dollars to buy the metals you need, those metals become more expensive too.

HIRSCH: A strong dollar, in other words, has an effect on the metals market a bit like the Harry Potter spell Impedimenta (ph). It trips you up and can make you fall flat on your face, in case you didn't know. But it's nothing compared to the effects of the spell wielded by the third of our witches, the Avada Kedavra (ph), the killing spell - inflation. There's an antidote for inflation, of course - hiking interest rates.

MA: Rising interest rates makes borrowing more expensive. And a lot of people who trade metals, they are trading with borrowed money.

HIRSCH: Yeah. So Tai says as interest rates have risen, so demand for metals has slid even more.

MA: Tai says this combination of a strong dollar, plus rising interest rates, plus a sluggish Chinese economy means we are likely to see a lot more ups and downs in the metal market and, most likely, more downs than ups.

HIRSCH: In the meantime, Tai says, all a trader can really do is strap in and keep informed about what's going on in the hope that there's not going to be any witchy surprises. And when it comes to straightening out the economy, none of us has a magic wand.

MA: Adrian Ma.

HIRSCH: Paddy Hirsch.

MA: NPR News. Transcript provided by NPR, Copyright NPR.

Adrian Ma covers work, money and other "business-ish" for NPR's daily economics podcast The Indicator from Planet Money.