Goldman Sachs: Copper and gold will be the biggest beneficiaries
Goldman Sachs analysts believe that copper and gold are expected to be the biggest beneficiaries among commodities after the Federal Reserve launches an interest rate cut cycle.
The Federal Reserve launched an interest rate hike cycle in March 2022. After 11 interest rate increases, the federal funds rate target range reached 5.25-5.5% in July last year. Since then, the Federal Reserve has stayed on hold at four consecutive interest rate meetings.
The market had previously generally expected that the current round of interest rate hikes has ended, and that interest rates are expected to be cut as early as March this year. However, with the release of the latest economic data, investors now expect that the Federal Reserve will not start cutting interest rates until June at the earliest, and it cannot even be ruled out. The possibility of further interest rate hikes.
Goldman Sachs said in a report on February 20 that if the Federal Reserve cuts interest rates, it will significantly benefit metals, especially copper and gold. It is expected that copper prices will rise by 6% and gold prices will rise by 3%.
The outlook is based on expectations that 2-year U.S. Treasury yields will fall by 100 basis points, with copper and gold prices rising more than other commodities such as oil.
London Metal Exchange (LME) three-month copper prices are currently trading at a nearly three-week high of $8,458 per ton, while spot gold prices have hit a nearly two-week high of $2,030.30 per ounce.
Goldman Sachs does not expect the Fed's rate cuts to have a significant impact on natural gas or agricultural products, as micro factors such as seasonal inventory cycles and weather conditions outweigh the impact of rate cuts.
Lower borrowing costs and better financial conditions could boost commodity prices. Surveys show that the vast majority of analysts expect the Federal Reserve to begin cutting interest rates in June, but this point in time may be delayed further.
Goldman Sachs said: "The positive impact of low interest rates on commodity demand and supply makes the impact on commodity prices ambiguous in theory. In practice, we find that lower inventory costs and looser financial conditions bring GDP growth has played a leading role in boosting demand for goods."
