The U.S. Federal Reserve cut its benchmark interest rate on Wednesday and more reductions are expected in the coming months. Analysts at both Citi and HSBC have taken the opportunity to do deep dives into how commodities are likely to perform looking ahead. Citi said in a fourth-quarter outlook report that the U.S. and global cutting rate cycles are set to “move into full swing” by the year end and should prove “very bullish” for precious metals, as real rates decline and growth concerns remain elevated. Median, annualized returns for precious metals were 13% in the six months following the first Fed rate cut in the past four cycles in 1995, 2001, 2007 and 2019, according to Citi. Twelve-month returns for the two most recent periods averaged 20%. Commodities are often thought to get a boost when rates fall, as a lower cost of borrowing can stimulate the economy and increase demand — but it’s not always so straight forward. Industrial metals, which include copper, aluminum and lithium, as well as energy, seem to benefit less amid a rate-cutting cycle, according to the bank’s data. Interest rates aren’t the only factor to consider, either. In its Sept. 15 note, Citi also said the U.S. election outcome, any possible tariffs, supply disruptions due to geopolitical tensions and China’s growth could all affect commodity prices. Gold and silver Despite this uncertainty, Citi said it is “very bullish” and has a “high conviction view” on silver , with a base case of more than 20% upside by the year end, and more than 30% upside for the next six to 12 months. That would see prices around $35 per ounce and $38 per ounce, respectively. Currently, the spot price of silver is around $31 per ounce. Citi said silver is set to benefit from the Fed’s cutting cycle, with ETF and fund future buying “very likely to rise sharply” over the next six months. “Silver has unique and bullish exposure to both sides of China’s bifurcated economy, is running a large persistent deficit, and is likely to attract substantial ETF, fund and China retail buying,” said Citi analysts. They also noted strong demand for silver amid China’s energy transition efforts, such as for use in solar energy and electric vehicles. It’s a similar story for gold , according to Citi. “As the Fed begins cutting and U.S. recession potential stays elevated amid labor market wobbles, we know empirically precious metals tend to significantly outperform other commodity sectors (especially energy) and that ETF buying tends to be stronger in low real rates environments,” Citi analysts wrote, stressing its “conviction view” that it’s bullish on gold over oil. While gold prices have repeatedly hit record highs this year, Citi predicts that they are “unlikely to be linear” from here but should trend higher, on average, in the fourth quarter and 2025. It predicts prices will test $2,600 per ounce into end 2024 and hit $3,000 in 2025. Spot gold prices are currently at around $2,590 per ounce. Copper and aluminum Copper has been a beneficiary of energy transition efforts and the artificial intelligence boom over recent years. Demand for copper is also widely considered an indicator of economic health as the metal has a wide range of applications throughout construction and industry. HSBC in a Sept. 17 report examined the relationship between Fed rate cuts and copper and aluminum prices over the past 30 years. “We expect metal prices to follow the path as in 2019 when rate cuts were launched as a mid-cycle adjustment to prevent a further economic slowdown,” HSBC analysts said. They added that this means both metals are likely to stay “range bound” during this rate-cut cycle and rally when demand picks up. “If a recession took place, rate cuts would be faster and larger than expected. We think metal prices would likely follow the path seen in the dot-com bubble in 2000-2003,” they said. In that period, industrial metal prices went through a “large decline” over an extended length of time, and HSBC said that’s likely to be the same in a similar scenario now – with a potential drop in prices of about 20%. The bank did, however, stress that there are other factors, such as supply and demand, that come into play. Nevertheless, against the current backdrop, it says it prefers aluminum based on tight supply. In its base case, Citi sees copper prices averaging $9,000 per ton for the rest of this year, citing U.S. election uncertainty and weak manufacturing sentiment. That represents a downside from its current price of around $9,390. In its bull case, prices are set to average $12,500 per ton in 2025 and $15,000 in 2026. That assumes “a very soft landing” in the U.S. and Europe and a fast Fed rate cut cycle driving a “strong and swift” global manufacturing rebound, said Citi. On aluminum, Citi said it was “neutral” ahead of the U.S. election, predicting in its base case that the metal would trade between $2,300 and $2,500 per ton in the fourth quarter of 2024. Its current price of around $2,473 falls within that range. It expects prices to rally to average $2,750 per ton in 2025 barring any tariff shocks as a result of U.S.-China tensions. Energy Citi anticipates that oil will suffer renewed price weakness in 2025, with Brent falling to around $60 a barrel. It’s currently trading around $74 a barrel. The bank projects a surplus even if OPEC+ maintains its production cuts . It said other factors should be taken into account, such as trade tariffs, renewed Iran sanctions, and demand from China. Based on what happened in 2019, trade tariffs lowered global oil demand growth by 0.2 million barrels a day. Over in China, any major stimulus — and only if the economy is performing poorly — could possibly boost oil demand growth by an additional 0.1 million barrels a day, said Citi. A slowdown in China, among the world’s largest importer and consumer of oil, has been blamed on slowing global oil demand. “China oil demand could surprise to the upside, but the magnitude may be contained as economic policies would unlikely target energy-intensive sectors given how authorities recognize an excessive capacity issue,” the bank said.
