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 straightforward. 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.
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.
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.
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.
Insight on Commodities Performance
Citi’s analysis suggests that a cutting rate cycle could have a positive impact on precious metals, with historical data showing significant returns in the six to twelve months following a Fed rate cut. However, while precious metals are expected to benefit, industrial metals and energy might see less significant gains during such cycles.
Silver Market Forecast
Citi expressed a strong bullish sentiment towards silver, expecting significant upside potential in the coming months. The metal’s unique exposure to China’s economy, coupled with other factors like supply deficits and increasing ETF buying, could drive silver prices higher in the near future.
Gold Price Projection
Similarly, Citi remains optimistic about gold, projecting a favorable performance compared to other commodity sectors. Despite hitting record highs this year, gold prices are expected to trend higher, with potential tests at $2,600 per ounce by the end of 2024 and a target of $3,000 in 2025.
Analyzing Copper and Aluminum Trends
HSBC’s analysis of copper and aluminum prices in relation to Fed rate cuts highlights the metals’ potential to remain range-bound during the current cycle but rally with increased demand. Factors such as energy transition efforts and economic indicators make copper a key player in the commodities market.
Energy Market Outlook
Citi’s outlook for oil prices in 2025 suggests a period of weakness, driven by factors like surplus production and geopolitical tensions. While OPEC+ cuts may mitigate some of the impact, external variables such as trade tariffs and demand shifts could influence oil prices in the coming years.
