Copper, gold price boost likely – Goldman

Copper and gold are likely to see an immediate price boost due to probable U.S. Federal Reserve interest rate cuts, Reuters reported citing Goldman Sachs’ analysts.

“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.

As of 05:42 GMT on Wednesday, spot gold was at a nearly two-week high of $2,030.30 per ounce, while three-month copper on the London Metal Exchange was trading close to a three-week high of $8,548 per metric ton. [MET/L] [GOL/]

Nonetheless, the Wall Street Bank stated that it does not anticipate any appreciable price changes for natural gas or agricultural commodities because small-scale variables like seasonal inventory cycles and weather dominate any effects from rate reductions.

“The positive impact of lower interest rates on both commodity demand and supply makes the commodity price impact ambiguous in theory,” Goldman told Reuters. “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.”

A small majority of Reuters-surveyed economists predicted that the U.S. Central Bank would lower the federal funds rate in June, with the possibility that this would not happen as planned posing a larger risk.