Fed Chair Powell addresses inflation concerns, commodities market eyes US Jobs data next week

Volatility expected to persist in commodities market

Ravindra Rao, CMT, VP-Head Commodity Research at Kotak securities

In a much-anticipated address at the Jackson Hole symposium, Federal Reserve Chair Jerome Powell acknowledged the progress made in mitigating inflation from its peak last year. However, he emphasized that inflation remained "too high," suggesting that interest rates could remain elevated for an extended period, leaving room for additional rate hikes. Powell also emphasized that policy would remain restrictive until inflation consistently declined towards its 2 percent target.

The Fed had raised its benchmark interest rate to a range of 5.25 percent to 5.5 percent the previous month, marking the highest level in 22 years. As expected, Powell highlighted that economic growth and labor market conditions would be closely monitored when making policy decisions.

Earlier in the week, the resilient US economy contributed to the belief that the Federal Reserve might maintain higher borrowing costs. This pushed US 10-year Treasury yields to a high of 4.36 percent, levels last seen in November 2007. However, yields retreated following softer-than-expected PMI data, prompting a resurgence in gold prices, which saw a weekly gain for the first time in four weeks. COMEX Gold rebounded sharply from its lowest point since early June, rising above $1950 per troy ounce despite the US dollar breaching 104.3 levels.

COMEX Silver also closed the week with a notable gain of 6.51 percent, boosted by rises in both gold and industrial metals, although investment demand in bullion remained subdued. Nevertheless, strong central bank purchases have consistently supported global gold demand in recent quarters, a reflection of heightened geopolitical tensions and macroeconomic uncertainties.

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Ravindra Rao

Head - Commodity Research|Kotak Securities

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In terms of price action, COMEX Gold is currently facing resistance around the $1,953 per troy ounce mark, which coincides with the 60-day moving average (DMA) resistance. To gain control and drive prices higher, the bulls must successfully breach this 60 DMA resistance on a daily closing basis. Failure to do so may result in price consolidation within the $1,950-$1,915 per troy ounce range.

Meanwhile, LME base metals posted decent gains this week, driven by China's efforts to stabilize its local currency and reports of China planning steps to enhance funding for construction and infrastructure projects. Conversely, WTI crude oil prices traded below $80 per barrel, marking a second consecutive weekly decline. This decline was influenced by signs of easing supply tightness concerns, improved US relations with sanctioned oil producers Iran and Venezuela, and growing demand risks in China and the US.

On the technical front, a bearish engulf candlestick pattern in WTI crude oil near the multiple resistance zone favors bearish sentiment. However, for this pattern to be confirmed, price must close below $78.95 per barrel on a weekly basis. Failure to do so may lead to price consolidation within the $83-$79 per barrel range.

Looking ahead, volatility is expected to persist as the United States gears up for a busy week, with investors closely monitoring the labor report, the PCE price index, personal income and spending data, JOLTS job openings, ISM Manufacturing PMI, and the second estimate of Q2 GDP growth.

Additionally, market attention will be on China's latest rollout of mortgage easing measures aimed at providing relief to the stressed residential property market and whether they meet market expectations.

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