Investor buying will support prices, for now

Despite some parts of China re-introducing lockdown measures and reported virus cases around the world continuing to spiral upwards, the prices of most commodities held up well this week as investor enthusiasm for risky assets remains high. We suspect that investor buying will continue to support most industrial commodity prices for some time. However, we think that the prices of almost all industrial commodities, with the notable exception of oil, will fall in the second half of this year as the gradual withdrawal of fiscal stimulus in China leads to lower growth in demand Next week, the Fed is scheduled to meet on Tuesday and Wednesday. We think that it will leave its policy settings unchanged. Instead, the focus is likely to be on Fed Chair Jerome Powell’s post-meeting press conference. Powell may use the opportunity to downplay the prospect of tighter monetary policy, despite the likelihood of more fiscal stimulus soon, which could put renewed downward pressure on the US dollar and give a slight boost to commodity prices, particularly gold.