Goldman Sachs believes that rate cuts will help the price of commodities

According to Goldman Sachs commodity analysts on Tuesday, changes in the market's expectations of Federal Reserve rate cuts have been reflected in commodity prices.

The strategists predicted that lower interest rates will support the commodities market going forward, "driven by an easier Fed stance (rather than by lower GDP growth)" in their writing.

The prices of industrial metals, particularly copper, and gold are predicted to be most affected by the Fed's policy easing, with cyclical oil products and crude oil also benefiting, albeit to a lesser degree.

On the other hand, Goldman's research showed that there is no discernible price relationship between natural gas and agricultural commodities to changes in interest rates. This is explained by the increased importance of micro variables like seasonal inventory cycles and meteorological circumstances.

Furthermore, the strategists emphasised that rate reductions have a gradual impact on the price of oil and industrial metals, confirming their long-held belief that oil acts largely as a spot asset.

The analysts calculated that the increase in oil prices resulting from a 100bp policy-induced decline in US 2-year rates would triple from 3% on the day of the Fed meeting to 9% after 1-2 years.

All things considered, Goldman's research supports its cautiously bullish view on commodities.

The financial giant sees favourable returns from industrial metals, especially copper, under a "soft landing" scenario in which the Fed lowers interest rates with decreasing core inflation and steady GDP.

(Sources: investing.com, reuters.com)