Goldman Sachs believes that metal prices will be “directly boosted” after the Federal Reserve cuts interest rates.
Goldman Sachs analysts say that if the Federal Reserve starts a cycle of interest rate cuts, copper and gold will be directly boosted the most.
The bank said in a February 20 report:
“If the Federal Reserve cuts interest rates to lower US two-year Treasury yields by 100 basis points, the direct boost to metals prices is greatest, especially copper (6%), followed by gold (3%), followed by oil (3%).”
Gold prices rose on Wednesday. Investors are currently awaiting the release of the minutes of the Federal Reserve's latest policy meeting and trying to find clues about the timing of the Fed's interest rate cut. The safe-haven demand boosted by the escalation of the Middle East conflict has also provided some support for gold.
Ole Hansen, head of commodity strategy at Saxo Bank, said, “We are patient with a bullish outlook for gold, but it is expected that the price of gold may not reach a new high until the Federal Reserve finally starts cutting interest rates.”
Hansen added that continued geopolitical concerns also supported gold, and emphasized that today's market focus will focus on meeting minutes.
FXTM senior research analyst Lukman Otunuga said, “If the tone of the conference is moderate, gold may shine brightly. Conversely, if the minutes sound more hawkish, gold could face downside losses.”
Regarding other commodities, Goldman Sachs also pointed out in the report that since micro factors such as seasonal inventory cycles and weather outweigh the impact of interest rate cuts, the prices of natural gas or agricultural products are not expected to be significantly affected.
Goldman Sachs said, “Falling interest rates have a positive impact on commodity demand and supply. In practice, we have found that GDP growth brought about by lower inventory costs and a more relaxed financial environment played a leading role in boosting commodity demand.”
According to a survey conducted by foreign media, most analysts expect the Federal Reserve to lower the federal funds rate in June. They also said that the greater risk is that the Federal Reserve cut interest rates for the first time later than expected.