Commodities Analysis by Frank Holmes covering: XAU/USD, Gold Futures, Copper Futures. Read Frank Holmes's latest article on Investing.com
In a recent report, Goldman Sachs highlights the potential for commodities to rally when interest rates decline. This insight is particularly relevant now, as a number of major financial institutions predict a series of rate cuts this year, perhaps as many as three, though some Federal Reserve officials are reportedly questioning the appropriateness of that number given the persistence of higher-than-average inflation.
One of the bank’s most significant findings is the historical relationship between commodities and interest rates. Goldman analysts note that materials have historically rallied when interest rates have been lowered in a non-recessionary environment, a trend that could bode well for the sector.
The firm expects the European Central Bank to take the lead in this rate-cutting cycle—also initiating interest rate reductions in July, but several days before the Fed. This divergence from the historical pattern of the ECB following the Fed is justified by the contrasting economic conditions in the eurozone and the U.S. The eurozone, for instance, faces lower inflation but persistent economic stagnation and the risk of overtightening.
Another near-term factor is the temporary closure of the Port of Baltimore due to the recent tragic collapse of the Francis Scott Key Bridge. The port is the second-largest coal exporting hub in the U.S., accounting for 28% of total U.S. coal exports in 2023, according to the Energy Information Administration . The closure is expected to decrease bunker fuel consumption and may impact the volume of U.S. coal exports in 2024.
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