Commodity Prices Surge Following Fed’s Rate Cut

Commodity markets witnessed a significant surge last week, driven by the Federal Reserve’s decision to lower interest rates by 50 basis points for the first time in four years. This move strengthened expectations of a soft landing and revived optimism in the financial markets.

After the September meeting, Fed Chairman Jerome Powell indicated that inflationary risks have decreased while the threat of rising unemployment has become more prominent. The possibility of avoiding a recession has also encouraged increased risk appetite across commodity investments.

Precious Metals and Commodity Prices React to Rate Cut

The ounce price of gold reached a record $2,658.8, up by 1.7%. Analysts suggest that the Fed’s rate cut, along with increased central bank purchasing, could push this commodity to $2,900. Additionally, the lower interest rates have reduced the opportunity cost of holding non-yielding assets like gold, making this commodity more attractive.

Silver prices also rose 1.5% last week. However, other precious metals saw declines, with platinum falling 2% and palladium down 0.1%. In base metals, copper prices jumped 2.7% amid hopes of increased demand for the commodity, while aluminum climbed 0.8%, driven by potential supply disruptions.

Energy Commodities Boosted by Multiple Factors

Brent crude oil, a key energy commodity, saw its barrel price rise by 3.2% due to concerns over US oil production following Hurricane Francine. The US Energy Information Administration reported a 1.6-million-barrel drop in crude oil stocks, far exceeding the expected decrease of 200,000 barrels. Escalating tensions in the Middle East also impacted this essential commodity.

Natural gas, another significant energy commodity, experienced a 6.6% increase in price due to rising geopolitical risks and increased demand, further strengthening the broader energy sector.

Agricultural Commodities Experience Mixed Movements

Agricultural commodity prices displayed varying performances last week. Sugar prices soared by 13.6%, primarily due to prolonged drought and extreme heat waves in Brazil, which severely impacted crops. The strengthening Brazilian real against the US dollar discouraged sugar exports, supporting higher prices for the commodity.

Soybean prices climbed 0.6% as concerns over dry weather in the US affecting production rose. Coffee prices briefly tested a high of $2.6595 per pound but ended the week down 3.4%. Meanwhile, wheat prices fell 4.4%, anticipating that geopolitical tensions between Russia and Ukraine would ease. Rice prices rose by 0.6% due to sustained demand from East Asia.

Elsewhere, corn prices gained 2.8%, cotton climbed 4.6%, while cocoa, another key agricultural commodity, slipped by 0.5%.

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