Portfolio manager Nicholas Johnson discusses how this rising rate cycle is different from ones in the past and what that may mean for commodities.
Economic and market conditions are very different now than during past rate hikes, leading PIMCO to conclude that that commodity prices are not likely to rise with rates.
- The Fed is raising rates to normalize policy, not slow growth and inflation, so the policy change will have less of an impact on commodities.
- Commodities are experiencing low demand and excess supply, making it unlikely we will see prices increase
- While the U.S. is raising rates other central banks are still easing. These divergent policies mean rate increases will likely strengthen the dollar, creating a headwind for commodities.
- Anticipation of rising rates has ignited a slow liquidation of gold, but if rates increase more or faster than expected it could exacerbate the selloff and cause a sizable move down in prices.