It’s Gold vs. Copper and Fed, With Upper Hand to Precious Metal
(Bloomberg Intelligence) — Federal Reserve jawboning amid global GDP downgrades and a declining stock market isn’t good for prices of copper and other industrial metals, and the endgame appears tilted favorably to gold. When fed funds futures start anticipating a rate-hike cycle end, the precious metal should breach $2,000-an-ounce resistance. (04/29/22)
1. Copper, Industrial Metals Face Lose-Lose vs. the Fed
The price outlook for industrial metals seems unfavorable vs. an emboldened Fed, China in decline and downward risks in the stock market. Revisions lower for global economic growth and another cut in China’s required deposit reserve ratio in April may reflect more enduring trends, and base metals are relatively extended. Our graphic shows the Bloomberg Industrial Metals Spot Index potentially in the early days of backing away from the most extreme stretch above its 100-week moving average since 2006.
The fate of industrial-metal longs around the 60% 1Q high vs. this mean hasn’t been good, particularly with many central banks focused on squashing inflation. Fed funds futures showing about a 3% rate in a year vs. a lower-bound 0.25% at the end of April might be a bit too high, and the same goes for base-metal prices. (04/29/22)
Fed Tightening vs. Peak Base Metal Risks
Source: Bloomberg Intelligence
2. What’s Needed for $2,000 Gold? Likely Fed Endgame
Gold bottomed in 2015 when the market began to anticipate a rate-hike endgame, and we see parallels in 2022. The precious metals’ price outlook appears straightforward to us — when the one year-out fed funds future (FF13) bottoms, so should gold. The graphic shows that when fed funds futures reversed a similar downtrend as now, gold began the rally from about $1,000 an ounce to the high close of $2,063 in August 2020.
Continued reversion lower in the stock market is a primary catalyst to reverse Fed rate-hike expectations, which may increase negative correlations between gold and equity prices. The S&P 500 down about 10% in 2022 to April 28 vs. gold up closer to 3% could mark the start of more enduring trends. (04/29/22)
This report may not be modified or altered in any way. The BLOOMBERG PROFESSIONAL service and BLOOMBERG Data are owned and distributed locally by Bloomberg Finance LP (“BFLP”) and its subsidiaries in all jurisdictions other than Argentina, Bermuda, China, India, Japan and Korea (the (“BFLP Countries”). BFLP is a wholly-owned subsidiary of Bloomberg LP (“BLP”). BLP provides BFLP with all the global marketing and operational support and service for the Services and distributes the Services either directly or through a non-BFLP subsidiary in the BLP Countries. BFLP, BLP and their affiliates do not provide investment advice, and nothing herein shall constitute an offer of financial instruments by BFLP, BLP or their affiliates.
