Hints of future rate cuts by Fed could fuel further gains in commodities

Commodities Outlook

Despite risk-off sentiment in global markets fueled by tariff angst, commodities performed relatively well last week. Gold surged to record highs, driven by safe-haven buying, while crude oil and metals benefitted from supply disruption concerns.

A softer dollar also played a significant role in supporting commodities. The greenback slipped to a five-month low of 103.22, weighed down by concerns over the economic impact of President Trump's tariffs. However, the dollar recovered from its lower levels, closing the week above 103.7, as fears of a burgeoning trade conflict with the US' key trading partners boosted inflation expectations, keeping the Fed's policy restrictive. US stock markets advanced on Friday as the government averted a shutdown, but key benchmarks still posted their fourth consecutive weekly losses amid growing recession fears.

Gold reached a record high, surpassing $3,000 per troy ounce for the first time ever, as President Trump's fluctuating tariff policies and fears of an economic slowdown fueled safe-haven demand. The rally was initially challenged by a pullback below $2,900 amid profit-taking. However, concerns about a recession due to trade policies under Trump, coupled with softer US inflation data, revived expectations of Fed rate cuts. Geopolitical tensions also supported safe-haven buying, as Ukraine launched its largest drone attack on Moscow, while the second phase of the Gaza ceasefire remained elusive.

MCX Gold April Futures gained substantially last week after breaching above consolidation, reaching an all-time high of Rs 88,310 per 10 gram. The bullish short-term trend remains intact, as the price is above the 20EMA and Supertrend (7,3). On the weekly chart, price has delivered a flag breakout, indicating that it might continue its bullish advance in the coming week but may encounter resistance near Rs 90,000. On the other hand, initial support is at Rs 86,600.

WTI crude oil closed the week above $67 per barrel, ending a seven-week losing streak, supported by tighter sanctions on Iran and Russia, along with fading hopes for a swift resolution to the Ukraine war. The US imposed sanctions on Iran’s Oil Minister and further restricted payment options for Russian energy companies. Oil market participants are now awaiting a decision on the 30-day ceasefire, which Ukraine has already accepted. President Putin agreed to the ceasefire idea but set tough conditions, which Ukrainian President Zelensky called "manipulative," while urging more sanctions on Russia.

LME base metals closed the week mixed, as copper and zinc saw gains, while aluminum fluctuated amid tariff uncertainty. Aluminum tested nine-month highs as the US imposed a 25% tariff on imports, although a proposed doubling of levies on Canada was retracted. Copper, which showed strong momentum throughout the week, initially surged on expectations of a 25% US tariff, which could tighten supply due to limited domestic smelting capacity. However, weak economic data from China, including deflationary pressures and sluggish demand, weighed on sentiment. Zinc prices hit a seven-week high of $2,975 per tonne after global producer Nyrstar announced a 25% production cut.

Next week is packed with key data and central bank decisions from the US, UK, and Japan. Important indicators from China will be closely watched, as more disappointing data following persistent deflation may prompt swift government action, as Premier Li Qiang recently named boosting consumption as the top task for the year.

While the US Federal Reserve, Bank of England, and Bank of Japan are expected to hold steady, all eyes will be on Fed Chair Powell’s remarks and the FOMC's economic projections. With the Fed signaling caution and traders growing more confident in a June rate cut after softer US inflation, it will be key to see how expectations shift post-FOMC.