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This behaviour of suspended magnet is responsible because of the magnetic field of earth. Below the crust of earth magma and core are present which consists molten form of many metals and other minerals. Now in molten form the atoms of metal are present in form of ions( charge) . Due to rotation of earth this charged ions also moves in circular form constituting an electric current , due to which magnetic field is created, directing from south pole to north pole ( of earth) outside the earth.
Thus it can assumed that a equivalent bar magnet is kepted inside the earth whose south pole is located near earth’s north pole and vice versa.
Now when a magnet is suspended it is attracted by the magnetic field of earth and north pole of suspended magnet is pointed towards north ( which actually act as south pole of earth's magnetic field). Using this principle only magnetic compass are created to determine direction.
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