Commodity investors should look West to map the market this week

Geopolitical tensions in the Middle East disrupt global markets

The Israel-Hamas conflict has been dominating the headlines, causing significant upheaval in global markets. There was optimism that diplomatic efforts, including visits by US President Joe Biden and Secretary of State Antony Blinken to Israel and discussions with the Arab governments might help ease the conflict's regional impact.

Plans for a diplomatic summit were derailed when the Arab leaders cancelled a meeting with the US president following an attack on a hospital in the Gaza Strip, leading to renewed pessimism.

Amid this turmoil, the US dollar managed to remain above Rs 106 level, although it faced pressure after recent comments from Fed chair Jerome Powell were perceived as dovish. Powell acknowledged signs of decreasing inflation and noted recent rise in the US long-term Treasury yields, suggesting that a persistent increase could reduce the need for further interest rate hikes. He, however, reaffirmed the Federal Reserve's commitment to its 2 percent inflation target, indicating that they intend to maintain their current stance and keep future rate hikes on the table.

In the commodities market, COMEX Gold saw a 2.43 percent weekly gain, following a remarkable 5 percent rally the previous week. It briefly tested the crucial $2,000-per-troy-ounce mark for the first time in nearly three months. Gold demonstrated resilience despite US 10-year Treasury yields rising for four consecutive sessions, approaching 5 percent for the first time since 2007, as expectations mounted that the Fed would keep interest rates at restrictive levels.

Silver also saw a weekend surge, ending the last week with gains of nearly 3 percent, but its upside potential was limited due to weakness in industrial metals and a consistent decline in iShares holdings.

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Ravindra Rao

Head - Commodity Research|Kotak Securities

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In our previous article from last week, we anticipated the potential for gold to reach $2,000 per troy ounce, conditional on surpassing the $1,968 resistance. This projection materialised as gold prices reached as high as $2,009 per troy ounce, a level not seen since July 2023. Notably, the price action indicated a break from a descending channel, reinforcing the bullish outlook. The recent $2,009 level now forms a double top, and breaching this level could drive prices towards all-time highs, approximately to $2,080 per troy ounce.

WTI Crude experienced a slight corrective dip at the end of the week, with gains of less than 1 percent on a weekly basis. Oil prices briefly tested the $90-per-barrel level amid concerns of supply disruptions, stemming from worries that the conflict might expand to other states in the Middle East, including Iran. Israel's expected ground invasion of Gaza, coupled with the buildup of troops on the border, contributed to these concerns.

On the other hand, LME base metals remained under pressure, extending their decline for a third consecutive week. This was primarily due to global risk-off sentiments and the ongoing property market crisis in China, which outweighed stronger-than-expected economic data and record liquidity injections from China.

Looking ahead to the current week, market attention will be directed at Western flash PMIs, the ECB policy meeting, US Q3 GDP figures, and the PCE price index. The resilience of the US economy has been a source of surprise thus far, and investors will closely monitor whether this momentum continues into the third quarter. Meanwhile, the Israel-Hamas conflict remains in the spotlight, with any escalation holding significant implications for global markets.

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