Russia-Ukraine peace talks and FOMC minutes to shape commodity markets this week

Commodities Outlook

By Kaynat Chainwala, AVP Commodity Research at Kotak Securities

Delay in US reciprocal tariffs and hopes for a lower-than-expected PCE (Personal Consumption Expenditure) reading help calm market nerves in an otherwise volatile week. The US dollar slipped to a two-month low of 106.57, closing the week down by 1.2%, weighed down by weaker-than-expected retail sales data, a delay in reciprocal tariffs, and a pullback in US Treasury yields. The 10-year Treasury yield, which had surged to 4.66% after the CPI report, completely reversed its gains following the release of the PPI report. Some components of the PPI, which feed into the PCE, softened, fueling hopes for a lower-than-expected PCE reading and increasing expectations for rate cuts. Money markets are now pricing in about 40 basis points of Fed cuts in 2025. This helped push US equities higher, with the Dow Jones, Nasdaq, and S&P 500 seeing decent weekly gains, with the S&P 500 closing just shy of its record high.

COMEX Gold extended its winning streak for the seventh consecutive week, the longest since August 2020, reaching a record high of $2,968.50 per troy ounce. Despite a sharp pullback on Friday, gold still closed the week with marginal gains near $2,900 per troy ounce. Alongside gold, silver also benefited from heightened safe-haven demand amid escalating trade tensions, particularly after President Trump announced reciprocal tariffs on nations taxing US imports, raising inflation concerns. Additionally, weak US retail sales and growing expectations of a Fed rate cut further boosted gold’s appeal. Fed Chair Powell acknowledged progress in taming inflation but stressed that restrictive policies will remain in place until inflation approaches the 2% target. Ongoing uncertainty over trade and inflation may continue to support bullion prices in the near term.

MCX SILVER March futures on the daily chart surged significantly on Friday, reaching its highest level in three months (Rs 98,199 per kg). The price, however, decreased later to close at Rs 95,564. Price is above Supertrend (7,3) and 20 EMA indicating bullish bias. We expect the price to continue its Bullish move next week but may find initial resistance at Rs 98,800 followed by Rs 99,900. On the flipside, initial support lies at Rs 92,800 followed by Rs 91,700.

WTI crude oil experienced a decline for the fourth consecutive week, hurt by easing concerns over the cancellation of the Gaza ceasefire agreement and President Trump's talks with Russia aimed at ending the Ukraine war. However, the decline was modest, as prices surged earlier in the week to $73.70 per barrel, the highest level this month, driven by concerns over stricter sanctions on Russia and Iran, as well as the potential cancellation of the Gaza ceasefire. Oil prices are likely to remain under pressure due to signs of easing physical markets, with WTI's prompt spread inching toward parity.

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Kaynat Chainwala

Senior manager - commodity research|Kotak Securities

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LME base metals closed the week mixed amid ongoing trade tensions and supply concerns. While Trump imposed a 25% tariff on steel and aluminum imports, copper remained exempt, although future levies remain a risk. Copper edged closer to three-month highs, supported by tightening supply from Chile and China's restrictions on new smelters. Zinc extended its rebound as global production declined for the third straight year, with China and Alaska’s Red Dog Mine cutting output. Aluminum prices gained due to supply concerns, although China's record-high production is approaching its government-imposed cap. Despite resilience in key metals, uncertainty over trade policies and China’s slowing manufacturing activity kept markets cautious.

Markets are now awaiting the FOMC meeting minutes, as mixed inflation numbers coupled with weaker retail sales have complicated the Fed's decision, while Fed Chair Powell and several other Fed officials have indicated that the central bank is in no rush to cut rates. On the data front, the Flash PMI number will be closely watched for early hints on economic activity in February. Meanwhile, the upcoming meeting between top officials from the US, Ukraine, and Russia in Saudi Arabia, aimed at resolving the Russia-Ukraine war, will be pivotal for market sentiment. A successful outcome could weigh on gold and oil prices while fueling a rally in riskier assets.

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