Commodities may take a breather as US Government shutdown risks cloud jobs data

Commodities Outlook for next week

It was quite an eventful week (ended September 26) for commodities, as supply-side concerns and growing expectations of more Federal Reserve rate cuts in 2025 fuelled an impressive rally across the board.

The US dollar extended its recovery from the lowest levels since March 2022, closing the week above 98 as traders digested mixed signals from Federal Reserve officials. Fed Chair Jerome Powell reiterated the need to balance inflation risks against a slowing labour market, making it clear he would not pre-commit to further rate cuts without sufficient supporting data. In contrast, Fed Governor Michelle Bowman supported more cuts, citing a weakening jobs market, while inflation remained a key concern for other Fed officials, including Raphael Bostic and Austan Goolsbee.

All three major US stock indices hit record highs earlier in the week but pulled back as lower-than-expected US jobless claims and an upward revision to Q2 GDP sparked concerns that this may hold the Fed back from cutting rates. Uncertainty over a potential government shutdown also weighed on sentiment. However, losses were trimmed as US markets rebounded on Friday after three consecutive sessions of declines, with the core PCE data coming in line with expectations, which keeps the Fed on track for a potential rate cut at the October meeting.

COMEX Gold prices, too, rebounded sharply on Friday to $3,814 per troy ounce as the dollar weakened following the inflation data. Earlier in the week, gold hit a record high of $3,824, driven by reports that China is positioning itself as a custodian of foreign sovereign gold reserves, NATO’s warnings to Russia over airspace violations, and strong ETF inflows. Silver was the standout performer, surging to a 14-year high of $46.9 per troy ounce, supported by safe- haven demand and China’s pledge to expand wind and solar power capacity to more than six times 2020 levels.

MCX GOLD December futures began the week with a gap-up opening, surpassing the previous swing high of Rs 1,11,703 per 10 grams, after which the price surged sharply to hit a new all-time high of Rs 1,15,139 on Tuesday. The price is currently above the Supertrend (7,3) and the 20 EMA, indicating that the short-term bullish trend remains intact. A breakout and sustained move above the all-time high of Rs 1,15,139 could drive prices further toward Rs 1,16,650 and Rs 1,17,550. Immediate support is seen at Rs 1,13,280, followed by Rs 1,11,700.

WTI crude oil surged 4 percent, marking its biggest weekly gain since June, amid mounting supply concerns. Russia’s ban on fuel exports until the end of the year, ongoing Ukrainian attacks on Russian energy infrastructure, and Donald Trump urging both the EU and Turkey to curb Russian energy purchases all contributed to the price jump, pushing WTI above $66 per barrel. Additionally, NATO’s warning that it is prepared to respond to further Russian airspace violations kept geopolitical risks elevated.

Base metals ended the week on a mixed note, with copper in the spotlight as it surged to multi-month highs. The rally was sparked by growing supply concerns after Freeport-McMoRan declared force majeure at its Grasberg mine in Indonesia, which accounts for over 3 percent of global mined copper, due to a deadly mudflow earlier this month. Despite a stronger US dollar and rising inventories in China, copper posted its biggest weekly gain in five months, as traders also monitored Beijing’s move to curb new smelting capacity. Meanwhile, aluminium prices slipped despite steady global output, averaging 202,500 tons per day according to the International Aluminium Institute (IAI), and zinc also underperformed due to higher Chinese production.

With the US government on the brink of a shutdown amid funding disagreements between Republicans and Democrats, markets are treading cautiously. A shutdown would likely delay the release of key economic data, especially the influential jobs report, which plays a critical role in shaping the Fed’s next policy moves.

Investor attention next week (starting from September 29) will also focus on scheduled speeches from several Fed officials, with markets currently pricing in two quarter-point rate cuts in upcoming meetings. However, if the jobs report is released and shows significantly stronger employment gains, it could shift those expectations and reduce the likelihood of imminent easing.