How commodity prices will perform after rate cut: analysts | Wilnesh News
The Federal Reserve lowered its benchmark interest rate on Wednesday, with further cuts expected in the coming months. Analysts at both Citi and HSBC took the opportunity to delve into the commodity’s future performance. Citi said in its fourth-quarter outlook report that the U.S. and global interest rate cutting cycle will be “in full swing” by the end of the year, which will be “very bullish” for precious metals as real interest rates fall and growth concerns remain heightened. Over the past four cycles (i.e., 1995, 2001, 2007 and 2019), the median annualized return for precious metals in the six months following the first rate cut by the Federal Reserve was 13%, according to Citi. The 12-month return for the last two periods averaged 20%. It is often thought that when interest rates fall, commodity prices rise because lower borrowing costs stimulate the economy and increase demand, but it is not always that simple. Industrial metals including copper, aluminum and lithium, as well as energy, appear to benefit less from the rate-cutting cycle, the bank’s data shows. Interest rates aren’t the only factor to consider, either. Citigroup also stated in a report on September 15 that the results of the U.S. election, any possible tariffs, supply disruptions caused by geopolitical tensions, and the growth of China may affect commodity prices. Gold and Silver Despite this uncertainty, Citi said it is “very bullish” and has “high confidence” in silver, with basic expectations of more than 20% upside by the end of the year and more than 30% next year. Space six to 12 months. This would put prices at approximately $35 and $38 per ounce, respectively. Currently, the spot price of silver is approximately $31 per ounce. Citi said silver will benefit from the Federal Reserve’s interest rate cut cycle, with ETF and fund futures buying “likely to rise significantly over the next six months.” Citi analysts said: “Silver has a unique and bullish impact on the polarization of the Chinese economy, which currently runs large deficits and is likely to attract a lot of ETF, fund and Chinese retail buying.” They also pointed out that in China’s energy transition Amid efforts, such as solar energy and electric vehicle adoption, demand for silver is strong. Citi said it was a similar story for gold. Citi analysts said: “As the Federal Reserve begins to cut interest rates, the probability of a U.S. recession remains high amid labor market volatility, and we know from experience that precious metals tend to significantly outperform other commodities. sectors (especially energy), and ETF buying tends to be stronger in a low real interest rate environment. Although gold prices have repeatedly hit record highs this year, Citi predicts that gold prices are “unlikely to be linear” in the fourth quarter and 2025. Trending higher on average. Copper and Aluminum Copper has been a beneficiary of energy transition efforts and the boom in artificial intelligence in recent years. Copper demand is also widely seen as an indicator of the health of the economy because of the metal’s use in construction and industry. There are a wide range of applications. In a report on September 17, HSBC examined the relationship between Fed rate cuts and copper and aluminum prices over the past 30 years. HSBC analysts said: “We expect metal prices to follow the lead in 2019. trend in 2016, when the rate cut was a mid-cycle adjustment to prevent a further slowdown in the economy. They added that this means the two metals are likely to remain “range-bound” through the rate-cutting cycle and rebound when demand picks up. “If a recession occurs, rate cuts will be faster and deeper than expected. We We believe metal prices may follow the trends seen during the dot-com bubble of 2000 to 2003,” they said. During that period, industrial metals prices experienced “significant declines” over an extended period, and HSBC said a similar scenario could play out the same way now – with prices potentially falling by around 20%. However, the bank did stress that there are other factors at play, such as supply and demand. Still, against the current backdrop, the company said it is more bullish on aluminum due to tight supplies. In its base case forecast, Citi expects copper prices to average $9,000 a ton for the rest of the year, citing uncertainty over the U.S. election and weak manufacturing confidence. That’s down from the current price of around $9,390. In the bull case, prices will average $12,500 per ton in 2025 and $15,000 per ton in 2026. rebound,” Citi said. Citi took a “neutral” stance on aluminum ahead of the U.S. election and forecast aluminum prices in the fourth quarter of 2024 to be between $2,300 and $2,500 per ton. Prices are expected to rise to an average of $2,750 per ton by 2025, assuming no tariff shock from US-China tensions. Energy Citi expects oil prices to weaken again in 2025, with Brent crude prices falling to around $60 a barrel. It currently trades at about $74 a barrel. Even if OPEC+ maintains production cuts, the bank still expects to post a surplus. Other factors should also be considered, such as trade tariffs, new Iran sanctions and demand from China, the report said. Based on what happened in 2019, trade tariffs reduced global oil demand growth by 200,000 barrels per day. In China, any significant stimulus – and only if the economy performs poorly – is likely to boost oil demand by an additional 100,000 barrels a day, Citi said. China is one of the world’s largest oil importers and consumers, and its economic slowdown has been blamed on slowing global oil demand. “China’s oil demand is likely to see an unexpected rise, but the magnitude is likely to be contained, as economic policy is unlikely to target energy-intensive industries given how authorities recognize overcapacity issues,” the bank said.
