Analysts at Goldman Sachs anticipate that copper and gold will experience the most significant immediate price boost in the commodities sector if there are potential U.S. Federal Reserve interest rate cuts. In a note dated Feb. 20, Goldman Sachs stated that a 100 basis point decline in U.S. 2-year rates driven by the Fed would have the most substantial immediate impact on metals, particularly copper with a projected increase of 6%, followed by gold at 3%. Oil is also expected to see a 3% boost in prices.
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, while spot gold reached a near two-week high at $2,030.30 per ounce.
Goldman Sachs highlighted that it does not anticipate significant price effects on natural gas or agricultural commodities, attributing this to micro factors such as seasonal inventory cycles and weather, which are expected to outweigh any impact from potential rate cuts. The note emphasizes that while the theoretical impact of lower interest rates on commodity demand and supply is ambiguous, in practice, the positive effects on both demand and supply, driven by a lower cost of carrying inventory and higher GDP via easier financial conditions, are expected to dominate.
Economists polled by Reuters suggest that the U.S. central bank is likely to cut the federal funds rate in June. However, there is a greater perceived risk that the first rate cut might occur later than initially forecast.
