Analysts from Goldman Sachs anticipate that copper and gold will experience the most immediate price surge in the commodities sector due to potential interest rate cuts by the U.S. Federal Reserve.
In a note dated February 20, Goldman Sachs stated that a 100 basis point decline in U.S. 2-year rates driven by the Fed would result in the most substantial price increase for metals, particularly copper (6%) and gold (3%), followed by oil (3%).
As of 0542 GMT on Wednesday, three-month copper on the London Metal Exchange was trading near a three-week high at $8,548 per metric ton, and spot gold was at a near two-week high at $2,030.30 per ounce.
Goldman Sachs noted that it does not anticipate significant price effects on natural gas or agricultural commodities, citing micro factors such as seasonal inventory cycles and weather that outweigh any impact from rate cuts.
The bank emphasized that while the theoretical impact of lower interest rates on commodity demand and supply is ambiguous, in practice, the positive effects on demand and supply, particularly from a lower cost of carrying inventory and higher GDP via easier financial conditions, tend to dominate.
According to a Reuters poll of economists, the U.S. central bank is expected to cut the federal funds rate in June, with a slim majority, but there is also a perceived greater risk that the first rate cut might occur later than initially forecasted.
Paraphrasing text from "Investing" all rights reserved by the original author.
