Copper and gold are expected to see the largest immediate price boost in the commodities sector from potential US Federal Reserve interest rate cuts, analysts at Goldman Sachs said.
“The immediate price boost from a Fed driven 100 basis point decline in U.S. 2-year rates is the largest for metals, especially copper (6 per cent), and then gold (3 per cent), followed by oil (3 per cent),” Goldman Sachs said in a note dated February 20.
Three-month copper on the London Metal Exchange was trading near a three-week high of $8,548 per metric ton as of 0542 GMT on Wednesday, while spot gold was at a near two-week high at $2,030.30 per ounce.
The Wall Street bank, however, said it expects no significant price effects on natural gas or agricultural commodities as micro factors such as seasonal inventory cycles and weather outweigh any impact from rate cuts.
“The positive impact of lower interest rates on both commodity demand and supply makes the commodity price impact ambiguous in theory,” Goldman said.
“In practice, we find that the demand boost to prices from a lower cost of carrying inventory and from higher GDP via easier financial conditions dominates.”
The U.S. central bank is expected to cut the federal funds rate in June, according to a slim majority of economists polled by Reuters, who also said the greater risk was that the first rate cut would come later than forecast.
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