Gold, copper set to remain elevated amid Trump’s reciprocal tariff plans

Commodities Outlook

By Kaynat Chainwala, AVP Commodity Research at Kotak Securities

As trade tensions between the world’s two largest economies continued to escalate, announcement of reciprocal tariffs by President Trump, set to take effect next week, added further uncertainty to global financial markets.

The US dollar surged to 109.88 earlier in the week, buoyed by US tariffs on key trading partners. However, it retreated sharply after the US delayed a 25% tariff on Mexico and Canada for one month. The threat of further tariffs, combined with an unexpected increase in US wage inflation in January, which heightened concerns over price pressures, helped greenback close the week above 108 and contributed to a second consecutive weekly loss for major US stock indices.

Comex gold gained nearly 2%, marking its sixth consecutive weekly gain, and surged to a record high of $2910.6 per ounce as growing concerns over the US-China trade war and ongoing geopolitical tensions, prompted a surge in safe-haven buying. Additionally, China’s central bank expanded its gold reserves for the third consecutive month in January. Fears that President Trump might impose tariffs on gold imports further fueled the rally, pushing Comex prices higher relative to London spot prices.

The MCX Gold April futures on the weekly chart continued to ascend this week (ended February 7), reaching an all-time high of Rs 85,279 per 10 gram. The price closed higher for the seventh week in a row. Furthermore, the price saw the highest weekly gain in two months (3.1%). Although we expect the price to continue its upward trajectory in the coming week (starting from February 10), it may find initial resistance at Rs 85,500, followed by Rs 87,000. The RSI(14) is over 70, suggesting that the price is in an overbought zone; therefore, if the price is unable to sustain above the Rs 85,500 barrier, we may see a correction in which the price may test its initial support of Rs 83,000, which if broken, may fall to the next support of Rs 81,800.

WTI crude closed the week 2% lower, slipping to $70.4 per barrel, marking its third consecutive decline. This was primarily driven by President Trump’s renewed commitment to increasing US oil production, which is already near record highs, in an effort to reduce oil prices and combat inflation. Additionally, a sharp increase in US oil stocks and concerns that the potential US-China trade war could dampen crude demand growth weighed on prices. However, Saudi Aramco’s decision to raise its crude oil prices for Asian customers in March helped prices hold above $71 per barrel.

Earlier in the week, crude prices rose above $75 per barrel on supply disruption concerns following Trump’s imposition of a 10% tariff on Canadian energy imports. Markets are also closely monitoring the first batch of US sanctions against Iran under the Trump 2.0 administration, where the US Treasury Department targeted an international network allegedly facilitating the shipment of Iranian oil to China.

LME base metals closed higher, buoyed by optimism surrounding a potential demand recovery in China following the Lunar New Year holiday. Copper surged to three-month highs as traders braced for the possibility of tariffs on the metal.

Looking ahead, market participants are likely to see continued volatility as they assess the potential impact of China’s counter-tariffs on a range of US products, set to take effect on February 10.

Key economic data, including the US Consumer Price Index (CPI), retail sales, and testimony from Federal Reserve Chair Jerome Powell, will be closely scrutinized for insights into the Fed’s policy direction.

Given the uptick in inflation expectations, the ongoing strength of the US labour market, and a cautious stance from several FOMC officials, the Federal Reserve is likely to stay on the sidelines for now, keeping interest rates unchanged for at least one more meeting. As a result, hotter-than-expected inflation would only reinforce this position, making any potential rate cuts unlikely until June.