December FOMC meeting
The FOMC’s (Federal Open Market Committee) meeting is scheduled for December 12–13. So far, the Fed has raised rates twice this year. The general consensus is that we could see another rate hike at the December meeting. According to CNBC, quoting Fed Chair Janet Yellen, “We are not seeing undue inflationary pressure in the labor market, so our policy remains accommodative.” However, she also added, “But we do think it’s important to gradually move our policy rate toward what I’ll call a neutral level, which would be consistent with sustainably strong labor market conditions.”
Notably, despite rate hikes by the Fed, the US dollar has fallen against a basket of currencies this year. Conventional wisdom would make us believe that US dollar should strengthen after the rate hikes. However, markets seemed to have already priced in the rate hikes. The December rate hike also seems factored in by the markets (SPY) (SPX).
However, the December meeting would be closely watched for directions about 2018 rate hikes. We should remember that higher interest rates are technically negative for metals like copper. Higher interest rates increase financing costs for traders who hold copper in financing deals.
As a non-interest bearing asset, gold usually sees its price fall if interest rates rise and vice versa. Notably, Freeport-McMoRan’s (FCX) gold production is expected to spike next year as its Grasberg mine completes the open pit mining operations. Other copper miners including Turquoise Hill Resources (TRQ) (RIO), and Southern Copper (SCCO) also mine gold as a by-product.
To stay updated on the developments in this industry, visit Market Realist’s Copper page.