MUFG’s Ehsan Khoman believes one of the most significant metal price headwinds is about to be eliminated.
“High rates have been a critical headwind to base metals, driving a significant negative physical demand distortion from destocking and weighing on capital-intensive end-demand segments,” he said.
World Gold Council’s John Reade told Reuters on Monday, “Speculators on the Comex gold futures markets are positioned for this. It could be a case of buying the rumor and selling the fact.”
Gold negatively correlates to yields and usually outperforms other commodities during rate cuts. Traders are currently pricing in a slightly higher chance of a 50-basis-point cut than a 25-point cut at Wednesday’s FOMC meeting.
Short-term outlook: Be weary
Blue Line Futures Chief Market Strategist Phil Streible said last week’s explosive rally could cause concern with traders looking to make a precious metals play on the Wednesday Fed meeting.
“We are a little bit concerned,” he told the Jerusalem Post on Monday. “The last three or four sessions had a pretty explosive rally and a move up to all-time highs.”
He said the Chicago, Illinois-based firm is skeptical for the need for the Federal Reserve to cut aggressively with an initial 50-basis-point reduction.
“Inflation is trending lower, and the labor market saw a downtick on the last unemployment numbers, but it hasn’t been anything really drastic. We are expecting more of a soft landing and we think (Fed Chairman) Jerome Powell will be more data dependant going forward and take a small victory lap on inflation.”
Long-term outlook
Streible remains bullish on gold over the mid-to-long-term timeline.
“We believe any pullback that we could see in the next week as traders digest the fed will be supported by the long-term thesis that it’s only the beginning of the Fed’s cutting cycle and they will cut into 2025,” he said.
He said Blue Line targets a gold price of $2,750 by the end of 2024 supported by multiple interest rate cuts.