Commodity markets to take cues from geopolitical dynamics and US Core PCE

Commodities outlook for next week

Commodity markets drifted as rising geopolitical tensions, coupled with the Fed’s hawkish tone, kept traders on edge.

The US dollar surged past the 99 level after the Federal Reserve decided to keep interest rates unchanged at 4.25 percent–4.50 percent. While the Fed cited a resilient economic backdrop, Chair Jerome Powell warned that higher prices tied to tariffs are likely, reinforcing a cautious tone. The updated Summary of Economic Projections lowered the 2025 GDP growth forecast to 1.4 percent, raised core PCE inflation expectations to 3.0 percent, and projected the unemployment rate to rise to 4.5 percent. The closely watched dot plot revealed that 8 out of 19 Fed officials expect two rate cuts this year.

In addition, the threat of a broader conflict in the Middle East lent further support to the dollar. However, gains were capped as President Trump indicated that a decision on whether to strike Iran would be made within two weeks, which temporarily lifted risk appetite. While the greenback ended the week higher, major Wall Street indexes swung between gains and losses before ultimately closing largely unchanged, as traders monitored developments in the Israel-Iran conflict during the holiday shortened trading week.

Gold prices slipped nearly 2 percent, closing below $3,400 per troy ounce, pressured by a stronger dollar, Trump’s two-week waiting period, and prospects of fewer rate cuts. Silver also declined, though more modestly, down 1 percent, in line with a broadly positive trend in base metals as China’s mixed economic data offered some temporary relief. Retail sales exceeded expectations in May, although industrial output and the property sector remained weak. Among metals, aluminium led the gains, rising around 1.8 percent to close at $2,549 per tonne, supported by falling inventories, supply concerns from Guinea, and short squeeze risks.

After hitting an all-time high of Rs 1,01,078 per 10 grams on Monday, MCX GOLD August futures plummeted to create a Bearish Engulfing candlestick pattern on the daily chart. The price then moved sideways to decline for the remainder of the week. However, the price closed Friday above the 20EMA. The price is also trading above the Supertrend (7,3), which suggests that the short-term bullish trend is still in place. Initially, Rs 97,600 and then Rs 96,500 provide help. The initial resistance on the reverse side is Rs 1,00,300, which is followed by Rs 1,01,100.

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Kaynat Chainwala

Senior manager - commodity research|Kotak Securities

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WTI crude oil experienced sharp swings, ultimately closing the week with modest gains of 1.4 percent. Despite rising Israel-Iran tensions, no major oil supply routes were impacted, and the Strait of Hormuz remained open. However, traders remain cautious amid speculation that the US could become involved in the conflict. Reports suggest Iran has readied missiles and military assets for potential strikes on US bases in the Middle East should America intervene, keeping the risk of broader escalation high.

Looking ahead, traders may brace for heightened volatility as geopolitical tensions remain elevated, with Israel and Iran continuing to exchange missile strikes. Iran’s foreign minister stated that Tehran is willing to “consider diplomacy” only once Israel halts its aggression.

On the data front, markets will closely watch upcoming US GDP and core PCE inflation data amid mixed signals from the Fed. Most policymakers have reiterated a wait-and-see stance, indicating that the next rate cut may not come before September. Meanwhile, Fed Governor Christopher Waller suggested the central bank should consider cutting rates at its next meeting, as he believes any tariff-related price pressures will be short-lived. So, Investors should remain vigilant, as this fragile combination of geopolitical and economic factors could drive significant price moves across commodity markets in the near term.

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