Commodity markets to focus on FOMC statement and US core PCE that to shape policy expectations

Commodities Outlook

By Kaynat Chainwala, AVP Commodity Research at Kotak Securities

In the first week of President Trump's tenure, global markets experienced notable volatility, as traders grappled with uncertainty over his trade policies and their potential impact on the major global economies. Renewed expectations that the Federal Reserve could implement two rate cuts this year coupled with Trump’s expressed reluctance to use tariffs against China led to a 2% drop in the Dollar index, which retreated from a 25-month high to close the week at 107.5. Trump advocated for lower interest rates at the World Economic Forum during his virtual address at the World Economic Forum in Davos. Meanwhile, US equities saw weekly gains, bolstered by optimism over Trump’s corporate tax cut plans and a softer approach with China, which was well-received by investors.

Gold prices surged to a three-month high, climbing to $2,794 per ounce, as the precious metal continued to benefit from safe-haven demand. This marked a fourth consecutive week of gains for gold, spurred by Trump’s reiteration at the World Economic Forum of his intention to impose tariffs on Europe, China, Mexico, and Canada to bolster US manufacturing. Drop in US consumer confidence and the slowest business activity expansion in nine months, further boosted gold’s appeal. Silver, on the other hand, finished the week relatively unchanged, with its price remaining above $31 per ounce, supported by a weaker US dollar.

Friday saw a strong rally in MCX Gold February futures on the daily chart, closing higher for the fourth day in a row. Price is trading above 20EMA and Supertrend (7,3) confirming bullish bias. We expect price to continue its bullish run this week, but may meet initial resistance at Rs 80,500 per 10 gram, breaking over which price may touch Rs 82,000. On the flipside nearest support lies at Rs 79,200 followed by Rs 78,400.

WTI Crude oil prices faced downward pressure, with prices falling to a two-week low of $74 per barrel, down 4% from the previous week’s close. This marked the first weekly decline of the year, driven by Trump’s statement that he would press Saudi Arabia and OPEC to reduce oil prices. Additionally, Gaza ceasefire, concerns over US tariffs on China and the European Union, as well as Trump’s push to increase US oil production, weighed on the market and contributed to the pullback in oil prices from a mid-January peak of $80.70 per barrel. Oil prices may remain under pressure amid Trump’s tariff threats and as Putin’s readiness to talk with the US about Ukraine may prompt Trump to ease some sanctions on Russia.

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Kaynat Chainwala

Senior manager - commodity research|Kotak Securities

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In the base metals pack, copper emerged as a standout performer, buoyed by a weaker dollar and supply concerns from major mines such as Freeport-McMoRan. Additionally, BHP’s announcement of a 10% production boost at its Escondida copper mine, driven by long-term bullish prospects for the red metal, supported the price. Copper neared a 10-week high during the week, although broader metal markets faced challenges due to geopolitical risks and subdued demand from China ahead of the Lunar New Year holiday. Despite expectations of Chinese stimulus and supply disruptions, metals prices remain vulnerable to global uncertainty and weaker demand in the near term.

Looking ahead, markets will turn their attention to key central bank decisions. The Federal Reserve is widely expected to hold interest rates steady in its upcoming meeting, while the European Central Bank (ECB) is anticipated to cut rates by 25 basis points. Economic data from the US, including the Core PCE, Advance GDP, and PMI figures from China, will also be closely watched. While the Trump administration’s unclear stance on tariffs continues to keep markets on edge, there may be some relief as the threat of universal tariffs subsides.

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