Fed Hikes Rates Again, Copper Faces "Unprecedented" Demand


Editor’s Picks: Fed Hikes Rates Again, Copper Facing “Unprecedented” Demandyoutu.be

The US Federal Reserve‘s latest meeting took place this week from Tuesday (November 1) to Wednesday (November 2), and as many market participants expected, it ended with the central bank hiking rates by 75 basis points.

The Fed has now done four hikes of 75 basis points in a row, leaving its short-term borrowing rate in the range of 3.75 to 4 percent, which is the highest level since January 2008. It was much lower at the start of the year at 0 to 0.25 percent.

Post-meeting comments from Fed Chair Jerome Powell have been closely scrutinized. He indicated that while no decision has been made yet, the Fed may slow its rate increases “as soon as the next meeting or the one after that.”

However, he emphasized that he thinks it’s “premature” to think about pausing.

“It’s very premature in my view to think about or be talking about pausing our rate hike. We have a ways to go. We need ongoing rate hikes to get to that level of sufficiently restrictive” — Jerome Powell, US Federal Reserve

In the resource sector, all eyes were on gold, which has largely trended downward this year after peaking at more than US$2,000 per ounce in March. Although it traded as low as US$1,618 on Thursday (November 3), the yellow metal rebounded on Friday (November 4), ending the week at the US$1,680 level. The increase came as a mixed US jobs report hit the market.

Whether gold’s gain will stick remains to be seen. The experts I’ve been speaking to agree that the precious metal is unlikely to see sustained upward momentum until the Fed either pauses its rate hikes or starts to move rates back down. The idea is that higher rates are supporting the US dollar, whose strength is suppressing gold.

As Will Rhind of GraniteShares explained to me this week, “We can only really start to talk about gold bottoming at the same time as we’re talking about the dollar peaking.”

“We can only really start to talk about gold bottoming at the same time as we’re talking about the dollar peaking, and I’m not quite sure we’re ready to say that yet until … we have a bit more clarity around what happens with interest rates” — Will Rhind, GraniteShares

Copper facing supply constraints, strong demand

As we wrap up, I want to take a quick foray into copper. While short-term headwinds have brought prices down from the high levels seen earlier this year, many experts continue to point to the base metal‘s long-term potential.

Copper’s positive outlook is largely tied to supply. Underinvestment in recent years means that few mines are set to come online in the near term, and declining grades remain a challenge as well.

But there’s a demand aspect to the copper story as well — while the metal is known for its use in construction, its applications in the green energy transition are becoming increasingly important. Indeed, analysts at S&P Global believe “unprecedented” quantities of copper will be needed over the next 25 years.

“The wire and cabling within the vehicles will require refined copper. If the industry does not invest, there will be a shortfall in supply” — Eleni Joannides, Wood Mackenzie

It’s circumstances like this that have prompted experts like Joe Mazumdar of Exploration Insights to call copper the “commodity of the decade,” and to emphasize the opportunities that exist for investors who can identify stocks with quality copper assets.

“Copper would be the one I’d be going for. Some of it’s battery metals exposure, it’s construction. But also on the supply side the lack of development projects and the higher permitting risk combined with more geopolitical risk in two of the major producers, which is Chile and Peru” — Joe Mazumdar, Exploration Insights

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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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