Copper and Gold Prices Set to Surge from Potential Fed Rate Cuts
Goldman Sachs Predicts Immediate Price Boost for Copper and Gold
According to analysts at Goldman Sachs, potential U.S. Federal Reserve interest rate cuts could lead to the largest immediate price boost in the commodities sector for copper and gold. The analysts stated that a 100 basis point decline in U.S. 2-year rates driven by the Fed could result in a 6% boost for copper and a 3% boost for gold, with oil following closely at 3%. This forecast was outlined in a note dated Feb. 20.
Copper and Gold Prices Trending Upwards
As of 0542 GMT on Wednesday, three-month copper on the London Metal Exchange was trading near a three-week high of $8,548 per metric ton, while gold was at a near two-week high at $2,030.30 per ounce. The positive market movement indicates the potential impact of the anticipated Fed rate cuts on these commodities.
Minimal Impact Expected for Other Commodities
Goldman Sachs expressed the expectation that other commodities such as oil and agricultural products would not experience significant price effects from the rate cuts. The bank attributed this to micro factors such as seasonal inventory cycles and weather, which are likely to outweigh any impact from the rate cuts.
Impact of Lower Interest Rates on Commodity Prices
While the positive impact of lower interest rates on commodity demand and supply makes the commodity price impact ambiguous in theory, Goldman Sachs emphasized that the demand boost to prices from a lower cost of carrying inventory and from higher GDP via easier financial conditions is likely to dominate in practice.
Forecasts for U.S. Federal Funds Rate
Economists polled by Reuters have indicated an expectation for the U.S. central bank to cut the federal funds rate in June, with a greater risk that the first rate cut would come later than forecast. This forecast carries implications for various sectors, including commodities.
