Commodity Calls: Week Ending 23 February 2024

Pilbara Minerals sees an end to lithium’s plight, copper prices could rally 6% on Fed rate cut, and gold edges higher as the US dollar loses steam. Join Global X each week for Commodity Calls to explore all the recent signals and developments that occurred in the world of commodities.

Looking for more? Check out this week’s Market Moves and Thematic Spotlight.

Lithium

Bullish

  • The Zimbabwe government is encouraging lithium miners to put forward plans for increasing processing capacity despite the commodity’s weakening price.1 Zimbabwe has given top producers a March deadline to submit plans for development of local production capabilities for battery grade lithium. Zimbabwe has the 7th largest lithium reserves in the world, the extraction of which contributes up to 11% of the nation’s GDP.2
  • One of Australia’s largest lithium miners, Pilbara Minerals, believes the end of lithium’s price slump is in sight.3 CEO Dale Henderson says the company has seen a dramatic increase in demand over the past months.

Bearish

  • Top lithium miners around the world have come under significant pressure as lithium’s spot price has fallen by more than 80% since its December 2022 peak.4 Albemarle, the world’s largest lithium miner, has announced plans to lay off workers and halt expansion.5

Explore lithium with ACDC.

Copper

Bullish

  • Copper prices improved after the People’s Bank of China announced a surprise rate cut of 25bps on the country’s 5-year prime mortgage rate.6 The move seeks to support China’s faltering property market, an industry that has weighed on global copper demand.
  • A report by Goldman Sachs says copper and gold are the two metals expected to see the largest immediate price boost should the US Fed action any interest rate cuts.7 The investment bank sees a 6% increase in copper prices per 100 bps of cuts in the US 2-year treasury rates.

Bearish

  • The US Fed have stated they lack any clear historical parallel to guide them into 2024 and have pushed back against near-term rate cuts.8 Core PCE figures (the Fed’s preferred inflation measure) slated to be released on Friday are expected to rise above the Fed’s 2% inflation target on a three-month and six-month annualised basis, further validating the Fed’s decision to err on the side of caution.9

Explore copper with WIRE.

Gold

Bullish

  • Gold edged higher as the US dollar index notched its first weekly loss in 2024.10 Investors are taking a break after an almost two-month rally stemming from expectations that US interest rates will stay higher for longer.
  • Safe haven purchases continue to be a driver for gold prices as tensions continue to escalate in the Middle East. A commercial cargo ship was struck and damaged in the Red Sea in yet another attack by the Yemen-based Houthi militants.11
  • A report by Goldman Sachs says copper and gold are the two metals expected to see the largest immediate price boost should the US Fed action any interest rate cuts.12 The investment bank sees a 3% increase in gold prices per 100 bps of cuts in the US 2-year treasury rates.

Bearish

  • The US Fed have stated that they lack any clear historical parallel to guide them into 2024 and have pushed back against near-term rate cuts, opting instead for caution.13 Markets now predict the earliest a rate cut will occur is in June.14

Explore physical gold with GOLD.