Eliza Wong
Precious Metals and Base Commodities Rally on Fed Speculation
Global markets are witnessing a historic rally in gold and copper prices as investors intensify bets on imminent Federal Reserve rate cuts. The so-called Fed rate cut trade has gained momentum amid shifting economic indicators and geopolitical developments, driving safe-haven assets and industrial metals to multi-year highs.
Gold Breaks Through $3,700 Barrier
Spot gold in London surged nearly $40 during Tuesday’s session, marking the first time prices breached $3,680 per ounce. Meanwhile, COMEX gold futures advanced approximately 1%, reaching a record $3,720 per ounce. This remarkable performance extends gold’s 2025 gains to over 40%, outperforming most major asset classes.
Copper Reaches 15-Month Peak
London Metal Exchange copper surpassed $10,190 per ton, exceeding its March highs and establishing its strongest level since June 2024. The base metal’s rally reflects both cyclical economic factors and structural demand drivers, particularly from artificial intelligence and defense sectors.
Drivers Behind the Fed Rate Cut Trade
Market participants are positioning for what could become the most aggressive Fed easing cycle since the global financial crisis. Swap contracts currently price in at least one additional 2025 rate cut, with strong probability assigned to a third reduction. This expectation has simultaneously lifted equity valuations, suppressed Treasury yields, and weakened the dollar—creating ideal conditions for commodity appreciation.
Political Pressure and Institutional Demand
The Fed faces unprecedented political pressure from the Trump administration, which has openly advocated for rapid rate cuts. Recent attempts to remove Governor Lisa Cook from the Federal Reserve Board underscore the intensity of this campaign. Simultaneously, central banks worldwide continue accumulating gold reserves, providing structural support to prices.
Macroeconomic Implications
Gold’s appeal as a non-yielding asset typically increases during periods of monetary easing. Goldman Sachs analysts note that if just 1% of privately-held U.S. Treasury assets shift into gold, prices could potentially reach $5,000 per ounce. This calculation highlights the enormous capital rotation potential underlying the current Fed rate cut trade.
Copper’s Dual Demand Narrative
While green energy transitions have progressed slower than anticipated, copper has found robust demand from unexpected quarters. Artificial intelligence infrastructure requires substantial copper for power transmission and cooling systems, while defense applications consume growing volumes for ammunition casings, aircraft, and missile systems.
Strategic Importance and Supply Dynamics
The U.S. Department of Defense identifies copper as its second-most utilized material, prompting calls for increased domestic production. This strategic importance recently catalyzed the mining sector’s largest deal in over a decade—the proposed $53 billion merger between Anglo American and Teck Resources. The combined entity would rank among the world’s top five copper producers, with assets concentrated in Chile, Peru, and Canada.
Policy Implications and Market Outlook
All eyes turn to this week’s Federal Open Market Committee meeting, where officials will reveal updated rate projections through the dot plot. President Trump’s nomination of economic advisor John Milan for a temporary Federal Reserve Board position adds another layer of uncertainty, as his potential inclusion could influence the committee’s dovish leanings.
Historical Context and Forward Guidance
The current Fed rate cut trade mirrors patterns observed during previous easing cycles, though today’s geopolitical backdrop introduces unique complications. Gold has already surpassed its inflation-adjusted historical highs, suggesting either fundamental reassessment of its value or speculative excess requiring cautious evaluation.
Portfolio Strategy Considerations
For institutional investors, the Fed rate cut trade presents both opportunities and challenges. Historical analysis suggests commodities typically outperform during initial easing phases, but subsequent performance depends on actual economic outcomes rather than anticipatory moves.
Strategic Implications for Global Investors
The convergence of monetary policy shifts, geopolitical tensions, and technological transformation creates unprecedented conditions for commodity markets. Investors should monitor several critical developments: Fed communication regarding cut timing and magnitude, China’s economic stabilization efforts, and actual demand patterns from AI and defense sectors.
While the Fed rate cut trade offers compelling short-term opportunities, sustainable returns will require discriminating between cyclical momentum and structural value. Copper’s fundamentals appear stronger due to tangible demand drivers, whereas gold’s rally relies more heavily on continued monetary accommodation and safe-haven flows.
Prudent investors might consider balanced exposure to both metals while maintaining flexibility to adjust positions as the Fed’s actual policy path becomes clearer. The coming weeks will test whether market expectations align with economic reality—a discrepancy that often separates tactical gains from strategic advantages.
