Gold vs Oil | Yellow metal up 13%, Brent crashes 17% in three months: What should you bet on amid rate cuts?

Gold vs Oil: Commodity baskets, including gold, silver, and crude oil, among others, have swung by huge margins ever since the US Federal Reserve delivered its supersized interest rate cut by 50 basis points (bps). Monetary policy rates have varying effects on gold and crude oil prices due to the relative appeal of the commodities, which investors seek to protect against global inflation.

US Fed chairman Jerome Powell said on Monday that the US central bank was not in a hurry to opt for aggressive rate cuts after new data boosted confidence in economic growth and consumer spending. Powell added that more interest rate cuts are in the pipeline but suggested they would occur at a measured pace intended to support a still-healthy economy. More policy reductions will likely propel gold and oil prices to fresh highs in the near-term trajectory.

Also Read: Oil shoots 3% from biggest monthly drop in two years on reports of Iran preparing attack on Israel; Brent up 3% to $73

Gold vs Oil: Price trend in July-September 2024

Crude oil prices logged a 17 per cent loss for the July-September period as fears that a widening conflict in the Middle East could curtail crude supply were overshadowed by waning global demand concerns. Logging its biggest monthly drop two years, the global benchmark Brent recorded a nine per cent loss in September on oversupply concerns.

In September 2024, Brent crude registered its biggest monthly decline since November 2022. This came after the benchmark plunged for a third consecutive month, registering a loss of 17 per cent in the last three months– in its biggest quarterly loss in a year.

Also Read: Crude View: D-Street experts peg Brent at $75-80 in near-term, Morgan Stanley cuts forecast by $5 on soft demand

The US West Texas Intermediate (WTI) futures benchmark tumbled seven per cent in September in its biggest monthly decline since October 2023, and slumped 16 per cent in its biggest quarterly drop since the third quarter 2023.

On the other hand, gold has risen over 13 per cent in July-September, which would be its best since early 2020, having hit an all-time high of $2,685.42 last week, fuelled by the US Federal Reserve’s half-percentage-point cut and flare-ups in the Middle East.

Current Prices: On Tuesday, crude oil prices climbed about three per cent after Iran fired a salvo of ballistic missiles at Israel in retaliation for Israel’s campaign against Tehran’s Hezbollah allies in Lebanon. Alarms sounded across Israel and explosions could be heard in Jerusalem and the Jordan River valley after Israelis piled into bomb shelters.

Brent futures gained $1.86, or 2.6 per cent, to settle at $73.56 a barrel, while US West Texas Intermediate (WTI) crude rose $1.66, or 2.4 per cent, to settle at $69.83. Earlier in the day, both crude benchmarks were up by over five per cent.

Gold prices also jumped over one per cent on safe-haven demand as fears of a full-out war in the Middle East escalated after Iran firedthe  ballistic missiles at Israel. Spot gold gained one per cent to $2,661.63 per ounce, after hitting an all-time high of $2,685.42 on Thursday. US gold futures settled 0.9 per cent higher at $2,690.3.

Also Read: US Fed pivot in focus: Why are gold prices following US Treasury yield? — Explained

Gold vs Oil: How does US Fed rate cuts impact commodities?

When risk appetite rises, investors generally shy away from safe-haven gold, although its recent gains have come alongside a rise in equities, especially after the US Fed’s oversized cut, as lower interest rates also burnish appeal for zero-yield bullion.

Fed Chair Jerome Powell on Monday predicted a continued slowdown in the country’s inflation, which could lead to a cut in the central bank’s interest rate. This move could eventually lift the constraints on economic activity “over time.”

Also Read: Oil logs second straight weekly gain after US Fed delivers supersized 50 bps rate cut; Brent, WTI gain 4% in 5 days

Analysts said at this stage, the main catalyst seems to be around macro drivers and monetary policy. So, scope for surprises in terms of the pace of interest rate cuts would potentially be the main trigger for gold prices to pick up its rally.

An interest rate cut will reduce yields and weaken the US dollar, making the yellow metal more attractive to investors. However, if inflationary pressures or stronger-than-expected economic data emerge, this could temporarily disrupt the trend and pressure gold prices.

Also Read: Crude oil sizzles on US Fed rate cut: Brent nears $74 with six-day rise, WTI stages recovery on demand optimism

Similarly, interest rate cuts typically boost economic activity and energy demand. US interest rate cuts have supported risk sentiment, which weakened the US dollar and supported crude prices. However, analysts said it takes time until rate cuts support economic activity and oil demand growth.

Historically, softer crude oil prices have eased inflationary pressures and reduced petrol and diesel retail prices. For the first time in four years, Powell-led rate-setting panel slashed its benchmark rate by 50 bps last month to 4.75 per cent—5 per cent. The US central bank had maintained the borrowing rate at 23-year high for 14 consecutive months since July 2023 to combat the worst inflation outbreak in almost 40 years.

Gold vs Oil: What should you bet on amid rate cut cycle?

Goldman Sachs raised its gold price forecast to $2,900 per ounce from $2,700 per ounce for early 2025. Analysts said gold is nearing $2,700 per troy ounce, and silver recently hit its highest level in 11 years. Gold and silver are gaining strength because of interest rate cuts by central banks around the world, stimulus efforts from China, and rising global tensions.

Also Read: US Fed delivers supersized 50 bps rate cut: FPI inflows to stronger INR—here’s how the verdict is ‘good’ for India

“Expectations of further rate cuts, along with geopolitical tensions, could provide support to gold and silver prices in the near future. Gold currently finds support at $2618-2601, with resistance at $2651-2669. Silver has support at $31.00-30.80, and resistance at $31.44-31.60. In INR terms, gold is supported at ₹74,750-74,570, with resistance at ₹75,190-75,380,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

Currently, traders expect a 49 per cent chance of another half-point rate cut in November, according to the CME FedWatch Tool. Lower interest rates reduce the opportunity cost of holding non-yielding assets like gold, which also benefits from its safe-haven appeal during times of economic and political uncertainty.

Also Read: OPEC+ to pause planned October oil output hike of 180,000 bpd for two months

On the outlook for MCX gold futures, Jateen Trivedi, VP Research Analyst – Commodity and Currency, LKP Securities said, “Gold prices traded positively with gains of ₹300 in MCX at ₹75,890 and in Comex near $2649, up by $15. The overall trend remains bullish, with support placed at ₹75,000 and resistance at ₹76,250- ₹76,400 in MCX. Any significant deviation in the data could impact gold’s short-term movement.”

For crude oil, on the other hand, Citi analysts said a counter-seasonal oil market deficit of around 400,000 barrels per day (bpd) will support Brent crude prices in the $70 to $75 a barrel range during the next quarter. UBS analysts said in a note to clients that declining global crude stockpiles should support oil prices going forward, pushing Brent back above $80 in the coming months.

Also Read:Gold rate today: Yellow metal climbs to a new peak on US Fed rate cut, weak US dollar. Experts see more upside

Morgan Stanley cut its Brent price forecast for the fourth quarter of 2024 by $5 per barrel to $75, a level it now sees for all quarters next year. It had previously been forecasting Brent to average $78 in the first quarter of 2025 and to decline steadily throughout the year to $75 in the fourth.

“Chinese central bank announced a cut in RRR by 50 bps and undertook stimulus measures to revive the Chinese economy thus supporting crude oil prices at lower levels. Escalating tensions in the Middle-East are also supporting crude oil prices. Crude oil is having support at $67.55-66.90 and resistance at $69.10-69.80. In INR, crude oil has support at ₹5,630-5,570 while resistance is at ₹5,775-5,840,” said Rahul Kalantri of Mehta Equities.

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.