After much anticipation, the closely-watched two-day Federal Reserve meeting wrapped up on Thursday, with the central bank saying it plans to raise interest rates sooner than expected. Although not immediately, the Fed said that it probably wouldn’t see any rate hikes this year, but there could be multiple in the years after 2021. While that might not seem like wild news, it was enough to send commodity prices plunging.
First on the chopping block was gold, which dipped below $1,800 per ounce following the Fed interest rate announcement. In turn, most gold miners ended up falling between 4-6% on Thursday, which includes Barrick Gold (GOLD) and Newmont Corp (NEM). It’s a similar story with silver miners, who also fell on Thursday by a small amount.
However, the biggest losers came from industrial commodities. Over the past few months, we’ve seen prices for copper, tin, steel, and iron skyrocket to extreme heights. Much of that has been due to strong housing demand, which has, in turn, been spurred by perpetually low-interest rates that have encouraged people to take mortgages. Many investors saw rising industrial commodity prices as a sign that inflation would be coming soon, and this Fed announcement has quickly sent prices falling.
Copper prices, for example, are down 3.3% on Thursday. Iron ore prices were down by around 1.5%. In turn, companies like Freeport McMoRan (NYSE: FCX), one of the largest copper producers in the world, was down as much as 7.8%. Other companies, like Teck Resources (NYSE: TECK), are down 5.6% as well.
Although the Fed announcement was the straw that broke the camel’s back, it wasn’t the only piece of bearish news that’s been hurting prices for industrial commodities. China is considered one of the largest consumers of industrial metals like copper and iron. Prices fell on Wednesday after the country said it plans to release industrial metals from its natural reserves in order to stop prices from going any higher. However, most industry experts are confident that this new surge in Chinese supply isn’t going to make that big of a difference.
“Unlike the oil industry, where you have an ongoing flow of discoveries and now with a new element of shale coming in, copper mines of size are very rare to find,” said Freeport CEO Richard Adkerson in an earlier interview when China first threatened to release its copper reserves.
Even besides metals, other commodities have dipped on this Federal Reserve news. Most of these tend to be assets that have been trading near record highs. This includes corn prices as well as lumber and more obscure precious metals like palladium. In this week alone, we’ve seen corn and soybean futures fall by 21.3% and 15.1%, while metals like silver, platinum, and gold are down between 5.7-8.0% during the same time period.
Freeport McMoRan Company Profile
Freeport-McMoRan Inc mines more copper than any other publicly traded company in the world. Its assets include the Indonesian Grasberg mining complex, the world’s largest copper and gold mine in terms of recoverable reserves. Freeport also has significant mining operations in the Americas. – Warrior Trading News