Fed’s rate cut lifts commodities, but market divergence signals volatility ahead
Anindya Banerjee
September 22, 2024 / 21:22 IST
Commodities Prices
Last week centered around the United States Federal Reserve, and the Fed delivered on market expectations by cutting rates by 50 bps, while signaling two more 25-bps cuts in November and December. However, a divergence exists between market expectations and Fed guidance. Markets anticipate rates to fall to 3 percent by the end of December, whereas the Fed’s dot plot suggests rates will only reach 3 percent by mid-2026. In response to the Fed’s action, commodities and other risk assets rallied.
Non-energy commodities had already priced in this move, rallying ahead of the meeting. Energy commodities, however, gained momentum post-Fed. Natural gas, which has been consolidating between Rs 170 and Rs 205 on the MCX for six weeks, looks poised for a bullish breakout. While fundamentals are mixed—due to milder US summer temperatures reducing demand and rig counts dropping—technical indicators support further upside.
Crude oil sentiment turned highly negative recently, leading to excessive short positioning. Historically, Brent crude has found buyers near $71 per barrel, and this support held again. We turned tactically bullish on crude around Rs 5,700 per barrel level, and prices have since crossed Rs 6,000 on MCX. As long as prices remain above Rs 5,800, we maintain a bullish stance, with targets of Rs 6,050/6,100 and potentially Rs 6,250/6,300.
Gold and silver continue to benefit from a weaker US dollar and positive risk sentiment. However, heavy speculative long positions could result in short-term profit-taking. We see opportunities to buy on dips, with medium-term targets of Rs 74,700 per 10 gram in gold and Rs 92,000 per kg in silver.
Base metals could remain under pressure as China’s economic slowdown weighs on prices. Copper remains vulnerable below Rs 821 per kg on MCX, with support at Rs 795 and Rs 778. Zinc could face resistance around Rs 273 per kg and drift towards Rs 257/258, while aluminium may move towards Rs 222 per kg. In lead, we expect a broader range between Rs 180 per kg and 190.
The Fed’s dovish stance has temporarily lifted risk assets, but the gap between market expectations and Fed guidance suggests potential volatility ahead. Commodities, especially in energy, have responded positively, but technical signals and China’s economic outlook could limit gains in base metals. Going forward, buying on dips in precious metals and crude oil may offer opportunities, while industrial metals like copper and zinc could remain under pressure.
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